If you take dividends from your own building or trade company, your personal tax bill went up on 6 April 2026 without you doing anything differently. The ordinary and upper dividend rates each rose by two percentage points. It is not dramatic on any single payment, and it is quietly significant over a year — enough that any structure comparison you were shown before Budget 2025 now understates what a company costs.
Article · 19 May 2026
| Rate | To 5 April 2026 | From 6 April 2026 |
|---|---|---|
| Ordinary (basic rate band) | 8.75% | 10.75% |
| Upper (higher rate band) | 33.75% | 35.75% |
| Additional | 39.35% | 39.35% — unchanged |
| Dividend allowance | £500 | £500 |
Announced at Budget 2025. Two percentage points on the ordinary and upper rates; the additional rate did not move, and the £500 allowance did not move either.
Salary £12,570 uses the personal allowance. Dividends of £40,000, less the £500 allowance, leaves £39,500 taxable — sitting partly in the basic rate band up to £50,270 and partly above it.
Roughly £37,700 falls in the basic rate band and £1,800 above it.
£790 more personal tax a year, for identical work and identical drawings. On £70,000 of dividends the increase is closer to £1,400.
These are illustrative figures to show the shape of it. Your own position depends on your other income, so see the structure page for a real calculation.
It moves the line rather than erasing it. The classic salary-plus-dividends advantage is narrower than it was, and at moderate profit levels with everything drawn out, a sole trader is now often the cheaper structure on tax alone. On around £70,000 of profit fully drawn, the sole trader position tends to come out ahead once corporation tax and the new dividend rates are both applied — a reversal from a few years ago.
What still favours a company:
What does not favour a company: a labour-only subcontractor incorporating on a £12,570 director's salary with no other staff. There is not enough PAYE to absorb the CIS deductions, so the money still waits for the year end, and now the dividends cost two points more as well. The structure guide works both cases through on 2026/27 numbers.
The personal allowance of £12,570 and the £37,700 basic rate limit are maintained to 5 April 2031, the freeze having been extended by three further years at Budget 2025. So the band in which dividends are taxed at 10.75% does not grow, and each year of price increases pushes more of a director's drawings into the 35.75% band.
Two points on the rate plus five more years of frozen thresholds is a compounding cost, not a one-off. If your company's profits are growing, it is worth modelling the next three years rather than just this one — the answer to "company or not" can flip inside that window.
The dividend rate rise was announced at Budget 2025 with Finance Bill 2025-26 as the vehicle. We have not independently confirmed Royal Assent of the Act. HMRC's own published rate tables already show 10.75% and 35.75%, and the rates are being operated, so the practical position is settled — but that is the honest status of the underlying legislation.
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The ordinary rate is 10.75% and the upper rate 35.75%, each two percentage points higher than the 8.75% and 33.75% that applied to 5 April 2026. The additional rate is unchanged at 39.35%, and the dividend allowance remains £500. The increase was announced at Budget 2025 and applies from 6 April 2026. On £40,000 of dividends taken alongside a £12,570 salary, the change costs roughly £790 more in personal tax a year for identical drawings; on £70,000 of dividends it is closer to £1,400.
Not on the dividend rates alone, but it is worth re-running the numbers. At moderate profit levels with everything drawn out, a sole trader is now often cheaper on tax than a company once corporation tax and the new dividend rates are both applied. A company still wins where profits are retained rather than drawn, where employer pension contributions matter, where limited liability is the real objective, and — the trades-specific one — where there is a real payroll, because a company offsets CIS deductions monthly against PAYE while a sole trader waits until after the tax year ends. Winding up a company also has its own tax consequences.
Because the band in which dividends are taxed at the lower 10.75% rate does not grow. The personal allowance of £12,570 and the £37,700 basic rate limit are both maintained to 5 April 2031, the freeze having been extended by three further years at Budget 2025. So every year of price increases and profit growth pushes more of a director's drawings out of the 10.75% band and into the 35.75% one, with no threshold movement to meet it. Two points on the rate plus five more years of frozen thresholds compounds, which is why modelling three years rather than one is worth the effort.
Yes. The dividend allowance is unchanged at £500 for 2026/27, so the first £500 of dividends is taxed at 0% regardless of which band it falls in. It is worth remembering how small that now is: at its introduction the allowance was £5,000, and at £500 it shelters a fortnight's drawings for most director-shareholders rather than a meaningful part of the year. It does not reduce the dividends counted in working out which band the rest falls into, so it is a nil-rate band rather than a deduction from income.
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