Dividend Tax Changes 2026 27 and How to Take a Dividend Safely
- Marzena Rokita
- 3 days ago
- 5 min read
The dividend rules for limited companies have not been rewritten, but the personal tax cost is changing. From 6 April 2026, basic-rate and higher-rate dividend tax rates rise by two percentage points, while the dividend allowance stays at £500.
That matters for company owners who take a mix of salary and dividends. The legal process for declaring a dividend remains much the same, but the tax due on some dividends will be higher in 2026/27.
This article is for general information only. It is not tax, legal, or accounting advice.
What changes for dividend tax in 2026/27
The main change is to the personal tax rates on dividends received on or after 6 April 2026.
The £500 dividend allowance has not changed. The additional-rate dividend tax rate also stays the same.
Tax year | Dividend allowance | Basic-rate dividend | Higher-rate dividend | Additional-rate dividend |
2025/26 | £500 | 8.75% | 33.75% | 39.35% |
2026/27 | £500 | 10.75% | 35.75% | 39.35% |
For example, a higher-rate taxpayer pays 35.75% rather than 33.75% on taxable dividend income that falls within the higher-rate dividend band in 2026/27.
The increase applies based on when the dividend is received. A dividend received before 6 April 2026 falls under the 2025/26 rates. A dividend received on or after 6 April 2026 falls under the 2026/27 rates.
The company dividend rules have not fundamentally changed
The tax rise does not mean companies can pay dividends in a new or easier way. A dividend still has to be properly supported and documented.
A limited company cannot pay a dividend just because there is money in the bank. Cash is not the same as profit.
A company may have £30,000 in its bank account but still lack enough distributable profit. For example, it may owe corporation tax, suppliers, VAT, PAYE, or have accumulated losses from earlier years. The bank balance is only one part of the picture.
A dividend must be paid out of profits available for distribution, not simply out of available cash.
HMRC guidance refers to the Companies Act requirement that distributions can only be made from profits available for that purpose. In plain English, the company needs sufficient distributable reserves after taking account of its accounts, retained profits, past losses, and relevant liabilities.
How to check there is enough distributable profit
Before declaring a dividend, prepare or review up-to-date figures. The level of detail depends on the company, but the aim is clear: the directors must have a reasonable basis for believing the company has enough distributable profit.
Useful checks include:
The latest annual accounts
Up-to-date management accounts
Accumulated retained profits or losses
Corporation tax liabilities
VAT, PAYE, and other tax debts
Supplier debts and other known liabilities
Any major post-year-end losses or events
Previous dividends already paid or declared
If the company has made losses in the current year, those losses may reduce or remove the amount available for distribution, even if earlier accounts showed retained profits.
If the company has more than one shareholder, also check the share rights. Dividends normally have to be paid in proportion to shareholdings within the same class of shares. If different shareholders are to receive different amounts, the company needs the share structure or paperwork to support that.
How to declare and pay a dividend safely
A safe process is practical and fairly simple. The problem comes when directors skip the paperwork or treat dividends like casual withdrawals.
1. Check the company has enough distributable profit
Start with the accounting position, not the bank balance.
The dividend must be supported by profits available for distribution. That means looking at the company’s accounts, including accumulated retained profits and losses.
If there is doubt, get the figures checked before paying. An unlawful dividend can create tax and company law problems later.
2. Hold a directors’ meeting or record a directors’ decision
The directors should approve the dividend before payment.
For many small companies, this may be a short written board minute rather than a formal meeting around a table. The key point is that the decision should be recorded.
The record should show:
The date of approval
The amount of the dividend
The shares or shareholders receiving it
The accounting period and profits considered
Confirmation that the company has enough distributable profit
3. Prepare dividend vouchers
Each shareholder receiving a dividend should get a dividend voucher.
A proper voucher normally includes:
Company name
Shareholder name
Date of the dividend
Amount paid
Class of shares
Signature or authorisation on behalf of the company
Dividend vouchers matter because shareholders may need them for their personal tax records. They also help prove that a payment was intended to be a dividend, not salary, a loan, or some other withdrawal.
4. Pay the dividend clearly
Pay the dividend from the company bank account to the shareholder. Use a clear payment reference, such as `Dividend`.
Avoid mixing dividend payments with expense reimbursements, salary, or director loan repayments. Clean records make later bookkeeping and tax reporting much easier.
The payment date can also affect the tax year in which the shareholder is taxed. This point matters more around 5 April, especially with the 2026/27 rate increase.
5. Record it properly in the accounts
The company’s bookkeeping should show the dividend correctly. It is not a business expense and it does not reduce corporation tax.
Dividends are paid from post-tax profits. That means the company first accounts for corporation tax on its profits, then distributes available retained profit to shareholders.
If a director-shareholder takes money before a dividend is properly declared, the payment may sit on the director’s loan account until the paperwork and profit position are resolved. If there are not enough profits, it may remain a loan rather than become a dividend.
What can go wrong with dividends
The most common mistakes are also the easiest to avoid.
A dividend may cause problems if:
The company did not have enough distributable profit
The paperwork was created after the event without care
The amount paid did not match the share rights
The company confused dividends with salary or loans
The shareholder did not report taxable dividends correctly
The payment date was misunderstood around the tax year end
If a dividend is unlawful, shareholders who knew, or should have known, that it was unlawful may have to repay it. For owner-managed companies, that risk is hard to ignore because the director and shareholder are often the same person.
Tax can also become messy. HMRC may challenge how payments have been treated if the records do not support the position.
What the 2026/27 rise means in practice
The Dividend Tax Changes 2026 27 make planning more important, not more complicated.
The basic checklist stays the same:
Confirm distributable profit before declaring a dividend
Approve the dividend properly
Prepare dividend vouchers
Pay and record it clearly
Report the dividend on the shareholder’s tax return where required
For a company owner, the key timing point is 6 April 2026. Dividends received on or after that date may be taxed at the higher 2026/27 rates. The £500 allowance remains available, but it is small, so many shareholders will still have taxable dividend income.
The safest approach is to treat dividends as formal company distributions, not casual drawings. Check the profit position first, document the decision, and keep the shareholder paperwork tidy. The tax rate may change, but careful records are still the best protection.
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