For most owner-managed companies a modest salary topped up with dividends is still the usual starting point, but the 2 percentage point rise in dividend tax from 6 April 2026 narrows the gap, so last year's split is worth checking. The right mix depends on your company's profits, your other income and how much you need to draw.
What changed
From 6 April 2026 the dividend ordinary rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate is unchanged at 39.35%, and the dividend allowance stays at £500.
| Dividend band | 2025/26 | 2026/27 |
|---|---|---|
| Ordinary (basic rate) | 8.75% | 10.75% |
| Upper (higher rate) | 33.75% | 35.75% |
| Additional | 39.35% | 39.35% |
Meanwhile employer National Insurance is 15% on salary above £5,000 a year, and the £10,500 employment allowance is not available where a director is the only employee paid above £5,000 a year.
The levers
- Salary is deductible for corporation tax but carries employer and employee National Insurance above the thresholds. It also builds State Pension entitlement.
- Dividends come from post-tax profits and carry no NIC, but are now taxed at higher rates.
- Employer pension contributions are generally deductible for the company and free of income tax and NIC for you, within your annual allowance.
- Family shareholdings and the timing of declarations either side of 5 April can make use of more than one person's allowances and bands, but the settlements rules can tax the income back on you if they are not set up correctly.
What to do now
Do not repeat last year's split by default. The right answer depends on your company's profits (and which corporation tax band they fall in), whether you pay Scottish income tax on your salary (dividend rates are the same across the UK), your other income, whether you are near the £100,000 threshold, and how much you need to draw. We model it for each director before the year's pattern is set, as part of our profit extraction work. If you are buying equipment before your year end, see capital allowances too. To review your own split, book a consultation.
This article is general information about UK tax, based on the law and HMRC practice at the date shown above. It is not advice, and reading it does not make you our client. Tax rules change and their effect depends on your circumstances, so please speak to us before acting on it.