The 2026/27 tax year brings important changes to dividend taxation that will directly impact directors and shareholders of UK limited companies. With increased tax rates and a significantly reduced allowance, it’s more important than ever to review how you extract profits from your business.
At M-Power Finance, we’re helping business owners stay ahead of these changes and avoid unnecessary tax costs.
What Has Changed?
Increased Dividend Tax Rates (From April 2026)
The government has increased dividend tax rates, meaning you will now pay more tax on income taken as dividends:
- Basic rate: 10.75%
- Higher rate: 35.75%
- Additional rate: 39.35%
These increases reduce the overall tax efficiency of dividends compared to previous years.
Dividend Allowance Remains Low
The dividend allowance remains at just £500.
This means only the first £500 of dividend income is tax-free, with anything above this threshold now subject to the higher rates. For many business owners, this results in a noticeable increase in personal tax liability.
Why This Matters
If you are a company director or shareholder taking dividends, these changes will likely affect you in several ways:
- You may pay significantly more tax on the same level of income
- Dividends are now less tax-efficient than before
- Frozen income tax thresholds may push you into higher tax bands over time
Combined, these factors can increase your overall tax bill without any increase in your income.
The Reality for Business Owners
What was once considered a highly tax-efficient way of extracting profits is becoming increasingly costly. Many business owners will see their annual tax bills rise by hundreds or even thousands of pounds if no action is taken.
What Should You Do Now?
Planning ahead is essential. We recommend that you:
- Review your salary versus dividend strategy
- Consider alternative profit extraction methods
- Plan proactively before the end of the tax year
- Seek professional advice to ensure you remain tax-efficient and compliant
How M-Power Finance Can Help
At M-Power Finance, we specialise in supporting small limited companies and sole traders with practical, proactive tax advice.
We can help you:
- Minimise your tax liability legally
- Optimise your income strategy
- Stay compliant with the latest regulations
- Make confident financial decisions for your business
Get in Touch
If you’re unsure how these changes affect you, now is the time to act.
Contact M-Power Finance today for a personalised review and ensure you’re not paying more tax than necessary.