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From 6 April 2026, UK dividend tax rates will increase, meaning many company directors and shareholders could pay more personal tax on dividend income. For owner-managed businesses, this creates an opportunity to review dividend plans before the end of the current tax year and consider whether earlier payment may be beneficial.
This article explains what is changing and the key points business owners should review now.
What is changing?
The Government has announced a 2percentage point increase to dividend tax rates from the 2026/27 tax year.
Tax band
Current rate
Basic rate: 8.75%
From 6 April 2026
10.75%
Current rate
Higher rate: 33.75%
From 6 April 2026
35.75%
Current rate
Additional rate: 39.35%
From 6 April 2026
39.35%
The dividend allowance remains £500, meaning the first £500 of dividend income is tax-free (although it still counts towards income thresholds). For shareholders receiving dividends above this level, tax liabilities may increase from April 2026onwards.
Should dividends be paid before 6 April 2026?
If dividends are already planned, bringing payment forward into the 2025/26 tax year may reduce personal tax — provided the company can legally and commercially support the payment. Timing alone should not drive the decision. Directors must ensure dividends are properly declared and sustainable for the business.
Conditions for paying a valid dividend
Before any dividend is paid, companies should confirm:
1. Sufficient distributable profits
Dividends can only be paid from accumulated realised profits. Up-to-date management accounts may be required.
2. Adequate cashflow
The company must remain able to meet ongoing liabilities such as VAT, PAYE and corporation tax.
3. Proper approval
Dividends should be formally approved and recorded through board minutes or written resolutions.
4. Correct documentation
Dividend vouchers must be prepared for each shareholder and retained with company records in case of HMRC enquiry.
Planning points to consider
Dividend planning should be reviewed alongside wider tax considerations, including:
- interaction with salary and other income,
- tax band thresholds and allowances,
- family shareholdings,
- pension contributions and remuneration strategy, and
- future business cash requirements.
Because dividends are taxed personally but paid from post-corporation-tax profits, the optimal approach varies significantly between individuals.
Avoid common dividend pitfalls
HMRC frequently challenges dividends where:
- paperwork is created after payment,
- insufficient profits existed at the time,
- drawings are incorrectly treated as dividends, or
- company records do not support the decision.
Maintaining proper governance and documentation is essential.
Next steps
With the tax year end approaching, now is a sensible time for company owners to review their dividend strategy.
A short review can help determine:
- whether bringing dividends forward is beneficial,
- how much can safely be paid, and
- what documentation is required.
If you would like us to review your position, please contact our team with your latest management accounts and proposed dividend plans.
This article is for general information only and does not constitute personalised tax advice.