If you’re a director of a limited company, one of the biggest financial decisions you’ll make is how you pay yourself.
Get it right, and you’ll keep more of your income.
Get it wrong, and you could be paying more tax than you need to—every single year.
With updated dividend tax rates for 2026, now is the time to review your approach.
There are two main ways to take money out of your company:
Paid through a PAYE payroll scheme, just like an employee.
👉 For more detail, see HMRC PAYE guidance
Paid from company profits after corporation tax.
The key: It’s not about choosing one—it’s about using both in the most tax-efficient way.
👉 See HMRC dividends guidance
For many directors, a common approach is to take a salary of £12,570 per year, which matches the personal allowance.
This means:
From there, dividends are used to top up your income.
👉 Personal allowance details: HMRC Personal Allowance guidance
From April 2026, dividend tax rates are:
You also get a £500 dividend allowance, meaning the first £500 of dividend income is tax-free.
👉 Full breakdown: HMRC dividend tax rates guidance
What this means for you:
Dividends are still tax-efficient—but the margin is tighter than it used to be. Planning matters more than ever.
This is one of the most common (and costly) mistakes.
Dividends can only be paid from:
👉 Guidance here: HMRC company distributions guidance
Not from:
If you take dividends without sufficient profits, you could run into:
Here are some practical tips to keep your tax bill under control:
A mix is usually more efficient than relying on one alone.
Crossing into higher rate tax can significantly increase what you owe.
👉 Income tax bands: HMRC income tax rates guidance
Make the most of:
When you take dividends can affect your overall tax position. Spreading payments or delaying them can help manage your tax bands.
Unlike salary, dividend tax isn’t deducted at source—so you need to plan ahead.
👉 Self Assessment guidance: HMRC Self Assessment guidance
In most cases, yes.
Even if you’re mainly paid via dividends, running a payroll scheme allows you to:
If you’re not currently operating payroll, it’s worth reviewing whether you should be.
👉 Learn more: HMRC payroll for employers guidance
Dividends aren’t just transfers to your personal account.
You’ll need:
It’s straightforward—but it does need to be done properly.
👉 Record-keeping rules: HMRC company record keeping guidance
There’s no one-size-fits-all answer.
The right mix of salary and dividends depends on:
What worked last year might not be the most tax-efficient approach now—especially with changing tax rules.
👉 Corporation tax overview: HMRC Corporation Tax guidance
A few small adjustments to how you pay yourself can make a big difference over the course of a year.
If you haven’t reviewed your setup recently, now’s the time.
If you’re not 100% sure you’re paying yourself in the most tax-efficient way, we can help.
Speak to your dedicated accountant at Honest Accounting—we’ll review your current setup and give you clear, practical advice tailored to you.
Talk to Chay Mottley our Commercial Director
📞 01524 256617
Explore more guides in our Honest Knowledge Hub or get in touch whenever you need advice. We are here to help you make confident financial decisions.
We’re here to make things simple. Whether you’re unsure about tax, need clarity on our fixed pricing, or just want some straightforward advice, ask away. At Honest Accounting, we’ll give you clear answers and practical solutions—no overpromises, just the support your business needs to move forward.
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