Dividend Tax Changes: What Company Directors Need to Know in 2025/26

Dividend tax continues to be a key pressure point for UK company directors in the 2025/26 tax year. What was once a straightforward and highly tax-efficient way of extracting profits now requires careful planning and regular review.

At Rothstone Accountants, we’re seeing more directors caught out by dividend tax than ever before — not because they’ve done anything unusual, but because the rules have tightened and their remuneration strategy hasn’t kept pace.

This guide explains what’s changed, what still applies, and when it’s time to get professional advice.

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Why Dividend Tax Still Matters in 2025/26

For most owner-managed limited companies, dividends remain a central part of director remuneration. However, several years of quiet policy changes mean that:

• Dividend allowances are now minimal

• Higher-rate tax applies much sooner

• Self Assessment is required in more cases

• January tax bills are often larger than expected

Many directors are still working on assumptions that were valid five or ten years ago. HMRC is not.

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What’s Changed (and What’s Stayed the Same)

The Dividend Allowance Remains at £500

For the 2025/26 tax year, the dividend allowance remains at:

• £500 per individual

Dividends within this allowance are taxed at 0%, but they still count as taxable income and can push you into higher or additional rate bands.

In practical terms, most directors exhaust this allowance very quickly.

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Dividend Tax Rates in 2025/26

Dividend tax rates remain unchanged for 2025/26:

• 8.75% – basic rate

• 33.75% – higher rate

• 39.35% – additional rate

While dividends are still taxed more favourably than salary, the margin is far narrower than it once was — particularly once higher-rate tax applies.

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More Directors Are Within Self Assessment

With the allowance reduced to £500, many directors who previously stayed outside Self Assessment are now required to file annual tax returns.

At Rothstone, we frequently help new clients who:

• Didn’t realise dividends needed reporting

• Assumed “small” dividends were covered by allowances

• Missed filing deadlines unintentionally

These issues are far easier to resolve early than after HMRC gets involved.

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What Still Applies (And Is Commonly Overlooked)

Dividends Must Be Paid From Profits

Dividends can only be paid from available post-tax profits. This requires:

• Up-to-date figures

• Sufficient retained reserves

• Proper declaration and documentation

Dividends taken without profits are illegal and remain a common trigger for enquiries by HM Revenue & Customs.

At Rothstone Accountants, dividend legality checks are a routine part of our year-round advice — not just something picked up at year end.

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Salary and Dividends Still Work — With Review

The traditional low-salary-plus-dividends model hasn’t disappeared, but it is no longer automatically the best option.

In 2025/26, the right balance depends on:

• Your total household income

• Company profitability

• Pension planning

• Long-term tax exposure

We now review director remuneration annually for clients, because what worked last year may no longer be optimal.

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Common Dividend Problems We See at Rothstone

Based on real client cases, the most frequent issues include:

• Assuming dividends under £500 don’t need reporting

• Forgetting dividends affect higher-rate thresholds

• Taking dividends without checking retained profits

• Paying personal expenses through the company and calling them dividends

• Not setting aside funds for the January tax bill

These problems often surface only when accounts are prepared — or worse, during an HMRC enquiry.

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A Typical Director Scenario

A director takes:

• £12,570 salary

• £30,000 in dividends

In 2025/26:

• Only £500 is tax-free

• A large portion of dividends falls into higher-rate tax

• The Self Assessment bill can exceed £7,000

This is exactly the type of situation Rothstone Accountants regularly reviews and restructures for clients.

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What Company Directors Should Do Now

1. Review Your Dividend Strategy Before Taking Dividends

Dividend planning should happen before money leaves the company, not after.

At Rothstone, we help directors:

• Forecast tax liabilities

• Optimise dividend timing

• Avoid accidental higher-rate exposure

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2. Plan for the January Tax Bill Early

Dividend tax is normally due by:

• 31 January following the tax year

• Often alongside payments on account

Early forecasting avoids cash-flow pressure and last-minute surprises.

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3. Consider Alternatives to Dividends

Depending on your circumstances, Rothstone may advise on:

• Pension contributions

• Bonuses

• Adjusting salary levels

• Dividend timing across tax years

There is no universal answer — only the right answer for your position.

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Final Thoughts

In the 2025/26 tax year, dividends are no longer a “simple win”. Reduced allowances and sustained higher rates mean directors need to be more deliberate, better informed, and properly advised.

At Rothstone Accountants, dividend planning is a core part of how we support owner-managed businesses — helping directors stay compliant, avoid unnecessary tax, and make informed decisions with confidence.

As always, dividend tax outcomes depend on individual circumstances, and tailored advice should be taken before action is taken.