10 Feb Dividend Tax Rates Are Rising in April 2026: What Limited Company Directors Need to Do Now
If you run a limited company and take dividends as part of your income, you've probably heard the whispers: dividend tax rates are going up in April 2026. And if you haven't heard yet, well, now you have.
The good news? You've still got time to plan. The less-good news? The clock's ticking, and burying your head in the sand won't make it go away. So let's break down exactly what's changing, what it means for your take-home pay, and what you can actually do about it before the new tax year starts.
What's Actually Changing?
From 6th April 2026, dividend tax rates are increasing by 2 percentage points for basic and higher rate taxpayers. Here's what that looks like:
- Basic rate taxpayers: 8.75% → 10.75%
- Higher rate taxpayers: 33.75% → 35.75%
- Additional rate taxpayers: 39.35% (no change)
The dividend allowance remains at £500 for the 2025/26 tax year, meaning any dividends above that amount will be taxed at these rates.
So if you're a higher rate taxpayer taking £30,000 in dividends (above your allowance), you'll pay an extra £590 in tax after April. Not earth-shattering, but not pocket change either. And if you're taking more substantial dividends? That 2% adds up quickly.
Why This Matters for Limited Company Directors
Most limited company directors follow a fairly standard approach: pay yourself a small salary (usually around the National Insurance threshold) and top up with dividends. It's tax-efficient, it's flexible, and it's been the go-to strategy for years.
But when tax rates change, your whole strategy needs a once-over. That dividend structure that worked brilliantly last year? It might need tweaking now.
Here's what you need to think about:
Your effective tax rate is going up. If you're taking £40,000 in dividends as a higher rate taxpayer, you'll pay roughly £800 more in tax per year after April 2026. Over five years, that's £4,000. Suddenly it's not so trivial.
The timing window is narrowing. We're in February 2026 now. You've got until 5th April to take advantage of the current lower rates. That's not long to make decisions, especially if you need to check your company's cash flow, review profit forecasts, or consult with your accountant.
Your dividend strategy might need adjusting. Perhaps you've been taking regular monthly dividends. Or maybe you take one big dividend at year-end. Either way, it's worth asking: should you change how and when you extract profit from your company?
Should You Take Dividends Before April?
This is the million-pound question (well, hopefully not quite a million pounds' worth of dividends, but you get the idea).
The straightforward answer: if you're a basic or higher rate taxpayer, and you were planning to take dividends anyway, bringing them forward could save you money.
But: and this is important: you shouldn't make knee-jerk decisions just because of a tax change.
Consider these factors first:
Can your company actually afford it? Don't drain your business bank account to save a bit of tax. You need cash reserves for VAT bills, Corporation Tax payments, supplier invoices, and general operating expenses. Cash flow trumps tax planning every time.
Do you personally need the money right now? If you bring forward £20,000 in dividends to save £400 in tax, but then you just leave that money sitting in your personal account doing nothing, what's the point? You're paying tax earlier than necessary and losing the time value of money.
What's your marginal tax rate? If taking extra dividends now pushes you into the higher rate band (over £50,270 in 2025/26), you might actually end up paying more tax overall. The maths gets complicated here, which is exactly why you need proper advice.
What about your personal allowance? Remember, if your total income (salary + dividends + any other income) exceeds £100,000, you start losing your personal allowance at a rate of £1 for every £2 over. This creates an effective 60% tax rate on income between £100,000 and £125,140. Ouch.
Beyond Dividends: Other Things to Think About
While we're on the subject of tax planning, here are a few other considerations for limited company directors:
Pension contributions remain one of the most tax-efficient ways to extract money from your company. Your company pays into your pension, gets Corporation Tax relief, and you don't pay personal tax. Plus, with dividend tax rates rising, the relative benefit of pension contributions just got even better.
Salary vs dividends balance. The optimal mix changes when tax rates shift. It might be worth revisiting whether your current salary level still makes sense, especially with the recent National Insurance changes for employers.
Profit extraction over multiple years. If your company's having a particularly profitable year, spreading dividend payments across tax years can keep you in a lower tax band. This is where forward planning really pays off.
ISA opportunities. Any investments you make through an ISA wrapper are completely tax-free, including dividends from shares. The 2025/26 ISA allowance is £20,000, which is worth using if you can.
Don't Leave It Until the Last Minute
Here's the thing about tax planning: it works best when you give it time. Scrambling on 4th April to make rushed decisions? That's not planning: that's panic.
Your limited company accountant should be having these conversations with you now, not in a few weeks when you're already stressed and running out of options.
If you haven't already, book in a proper tax planning session. Look at your projected profits for the rest of the 2025/26 tax year. Model out different scenarios. What if you take an extra dividend now? What if you wait? What if you adjust your salary instead?
These aren't questions with universal answers. It depends on your company's financial position, your personal circumstances, your other income sources, and your plans for the money.
How We Can Help
At Harrison's Accountancy, we're Xero Platinum Champions, which means we're not just processing your accounts: we're using real-time financial data to help you make smarter decisions.
When dividend tax rates change, you need a limited company accountant who can quickly pull up your year-to-date figures, forecast your tax position, and show you exactly how different strategies would play out.
We do this stuff every day. We've already had these conversations with dozens of clients, running the numbers and helping them decide the best approach for their specific situation.
And here's the reassuring bit: tax changes like this feel overwhelming, but they're manageable when you've got the right support. You don't need to become a tax expert overnight. You just need someone who already is one and who can translate it all into plain English.
The Bottom Line
Dividend tax rates are rising in April 2026. That's happening whether you like it or not. But you've still got a window to plan, to make informed decisions, and to potentially save yourself some money.
Should you take dividends before 5th April? Maybe. It depends on your numbers.
Should you panic? Definitely not.
Should you talk to your accountant? Absolutely.
The difference between scrambling at the last minute and having a proper plan in place is the difference between unnecessary stress and feeling in control of your finances.
If you're a limited company director and you're wondering how these changes affect you specifically, get in touch. We'll look at your situation, run the numbers, and help you make a decision you can feel confident about.
Because at the end of the day, that's what good tax planning should give you: confidence, not anxiety.
Need help working out your dividend strategy before April? Get in touch with Harrison's Accountancy and let's have a proper conversation about your options. We're Xero Platinum Champions and we specialise in helping limited company directors navigate exactly these kinds of changes.
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