Dividend tax for company directors: rates, allowance and how to report it

Dividend tax is the Income Tax you pay on dividend income, which is money a company pays to the people who own its shares. If you own shares in your own limited company and take dividends, the tax is yours, not the company’s.

GOV.UK describes a dividend as a payment a company can make to shareholders if it has made a profit. Many owner-managed companies pay their director-shareholders a dividend alongside, or instead of, a salary. How the two compare is covered in our guide to how to pay yourself from a limited company.

As of October 2026, dividends above your allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. These are the rates GOV.UK gives for 6 April 2026 to 5 April 2027.

The band you fall in depends on your total income: you add your dividends to your other income, such as salary. You can pay tax at more than one rate in the same year. Rates change, so check the current figures on GOV.UK before you rely on them.

Two things shield dividends from tax: your Personal Allowance and the dividend allowance. The standard Personal Allowance is £12,570 for 2026 to 2027, and on top of that you get a dividend allowance of £500 each year.

You pay no tax on dividend income that falls within your Personal Allowance, and you only pay tax on dividends above the £500 allowance. Dividends from shares held in an ISA are not taxed at all.

Your Personal Allowance also goes down by £1 for every £2 of adjusted net income above £100,000, and is zero from £125,140. The more salary and other income you have, the less room is left for tax-free dividends.

You add your dividends to your other income, take off your Personal Allowance, then tax the dividends above the £500 allowance at the rate for your band. GOV.UK gives this worked example for the 2026 to 2027 tax year.

The 10.75% on £2,500 comes to £268.75. That last sum is our own arithmetic on GOV.UK’s figures, not a GOV.UK figure.

Your company deducts no tax from the dividend when it pays you. The tax is settled afterwards, through Self Assessment or your tax code, which is why many directors set money aside when they take a dividend.

No. GOV.UK says the company does not need to pay tax on dividend payments. But dividends are not a business cost either, so you cannot count them when you work out the company’s Corporation Tax.

That means the company has already paid Corporation Tax on its profit before a dividend comes out of what is left. If you are planning cash for the year, our guide on how to pay Corporation Tax covers that side of the bill.

The company must have the profits to cover it and must follow a short procedure. GOV.UK says a company must not pay out more in dividends than its available profits from current and previous financial years.

• Hold a directors’ meeting to declare the dividend, and keep minutes, even if you are the only director.
• Usually pay dividends to all shareholders.
• Write a dividend voucher for each payment showing the date, company name, the shareholders being paid and the amount.
• Give a copy of the voucher to each recipient and keep a copy in the company’s records.

If the company has not made enough profit, a dividend is not the right route. Money taken out without being salary or a lawful dividend is treated differently, and we explain that in director’s loan accounts explained. A solicitor or accountant can tell you where you stand if you are unsure whether profits are there.

You must tell HMRC every year you receive dividends that you have tax to pay on, and how you do it depends on the amount. You do not need to tell HMRC if your dividends are within the dividend allowance.

Self Assessment bills are due by 31 January. You could be fined for missing the 5 October notification deadline, so diary it. Our UK tax year dates guide lists the main dates.

That is a question for an accountant, because the answer depends on the company’s profit and your other income. Salary goes through payroll with Income Tax and National Insurance and counts as a business cost. Dividends need available profit, and are not a business cost.

The same £500 dividend allowance and Personal Allowance apply to you whichever route you choose, and your salary uses up Personal Allowance before dividends do. If you take money out that is neither, it is a director’s loan with its own rules.

They can, because lenders look at the company’s accounts and cash flow, and a dividend leaves the company’s cash. Each lender sets its own criteria, so there is no single rule.

Taking large dividends in a year when you plan to apply for finance can reduce the profit and cash left in the business. Keeping clear dividend vouchers and up-to-date accounts also makes the position easier to explain. A forecast helps you see the effect before you take money out: see our guide to a cash flow forecast.

Capzy is a credit broker, not a lender, and is paid by the lender. We arrange business finance and do not advise on how you should pay yourself or on your personal tax, which is a question for your accountant.

If your company needs funding, you can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. You can also browse our directory of business lenders.