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Total tax on dividends
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dividend tax this year
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For guidance only — not financial, tax or legal advice. Verify with a qualified professional.
About dividend tax 2026/27
What is the dividend allowance in 2026/27?
The dividend allowance is £500 for 2026/27 — reduced from £2,000 in 2022/23 and £1,000 in 2023/24. You pay no tax on the first £500 of dividend income each year. Above this, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate), depending on which tax band they fall into when added to your other income.
What is the optimal salary for a director in 2026/27?
Most accountants recommend a salary of £12,570 (the personal allowance) if you have no other income, or £6,396 (the NIC secondary threshold) if you want to avoid employer NIC. At £12,570, you use up your full personal allowance with no income tax, and pay no employee NIC (below the primary threshold of £12,570). Your company pays no employer NIC either, as the threshold is £5,000 but the Employment Allowance can cover it. This leaves maximum room for dividends taxed at the lower 8.75% rate.
How are dividends taxed differently from salary?
Dividends sit on top of your salary when calculating which tax band applies. They are taxed at lower rates than salary — 8.75% vs 20% at basic rate, 33.75% vs 40% at higher rate. However, dividends do not qualify for pension tax relief and do not count as earnings for mortgage affordability purposes, which can be a practical issue.
Does my company pay tax before I take dividends?
Yes — dividends are paid from post-tax profits. Your company pays corporation tax (19% on profits under £50,000, up to 25% above £250,000 with marginal relief between) before you can distribute dividends. This calculator shows only your personal dividend tax — add corporation tax to get the full picture of what the money costs on its way from company profit to your pocket.