From April 2026, dividend tax rates will rise by 2 percentage points. For many small business owners, this represents a 25% increase in the tax actually paid on dividends, which is why so many people are feeling frustrated, overlooked, and concerned about their future take-home pay.
But before you think about throwing in the towel, this doesn’t have to be the end of the road. With some thoughtful planning, you can absorb the change, protect your income, and continue enjoying the freedom and flexibility that comes with running your own company.
Let’s break down what’s changing and what you can do about it.
What’s Changing?
From April 2026, the dividend tax rates will be:
- 10.75% for basic rate taxpayers (currently 8.75%)
- 35.75% for higher rate taxpayers (currently 33.75%)
- 39.35% unchanged for additional rate taxpayers
The annual dividend allowance remains at £500.
If you have rental income, savings income or other investments, it’s worth noting that those rates are increasing too, so tailored advice is important for anyone with multiple income streams.
Worked Examples: What Does This Mean in Practice?
Example 1: Tim – Staying in Basic Rate Band
Tim takes a salary of £12,570 and dividends up to the £50,270 threshold. No other income.
He pays no tax or employee NI on his salary and uses his £500 dividend allowance.
| Tax Year | Dividend Tax Rate | Tax Payable | Approx Take Home |
| 2025/26 | 8.75% | £3,255 | £47,015 |
| 2026/27 | 10.75% | £3,999 | £46,271 |
Impact: around £744 less take-home.
Example 2: Jane – Staying under £100,000.
Jane takes a salary of £12,570 and dividends of £87,430, keeping total income just under £100,000 to protect her personal allowance.
| Tax Year | Dividend Tax Rate | Tax Payable | Approx Take Home |
| 2025/26 | 8.75%/33.75& | £20,039 | £79,961 |
| 2026/27 | 10.75%/35.75% | £21,777 | £78,223 |
Impact: around £1,738 less take-home.
Frustrating? Absolutely.
How Does This Compare to Employment?
For perspective:
- An employee earning £50,270 typically takes home £39,700
- An employee on £100,000 takes home roughly £68,500
Even after dividend tax increases, most business owners still enjoy:
- More control
- More flexibility
- Often better net income than an employee on the same gross salary
You also avoid employee and employer NI — which remains a significant advantage.
The fact remains that the increase in dividend tax rate will affect your take home pay. But with some careful planning you can reclaim much of the difference.
Practical Ways to Make Up the Gap
Increase Profit, Even Slightly
A modest increase in profit can offset much of the tax rise. And yes, some extra dividends might push you into the higher-rate threshold but that’s not a bad sign.
You only pay the higher rate on the portion that exceeds the threshold, and dividends still avoid NI. More importantly, being nudged into higher-rate tax usually means your business is growing and your overall take-home still increases. Growth opens up options, whether that’s outsourcing, reinvesting, or easing your workload.
For those protecting the £100k personal allowance, simply taking more dividends isn’t the answer as the moment you take more you start to lose the very thing you have been trying to protect.
But you do have smart alternatives.
Pension Contributions Still Shine
Pensions remain one of the best tax saving tools for small business owners. An employer pension contribution is paid directly from the company before you take the money as a dividend. That means:
- you avoid dividend tax entirely on that amount
- you avoid employee and employer NI
- the company often gets corporation tax relief, reducing the overall tax burden
- the money goes straight into your pension gross, giving you far more value than taking it as income and contributing personally.
Even though a pension contribution doesn’t increase your take-home pay today, it reduces how much you need to take personally, helping you stay in your preferred tax band.
It’s one of the simplest ways to protect your tax position while building future security.
Make use of Allowable Business Expenses
Another way to soften the impact is to reduce personal spending by shifting legitimate costs into the business. Some are tax-free; others are simply cheaper when paid by the company. These won’t change your tax band, but they do increase your disposable income which is ultimately what most business owners are trying to protect.
Here are some commonly used options:
- Mobile phone (one per director) – A company-funded phone used for both business and personal calls can be provided tax free.
- Life insurance (Relevant Life Policy) – A hugely valuable benefit. Premiums are paid by the company, usually tax deductible, with no benefit-in-kind charge for you.
- Medical insurance – Not fully tax-free, but having the company pay often works out much cheaper than paying from personal taxed income.
- Training, qualifications and CPD – If it relates to your trade, the company can pay, saving you personal cost.
- Home office allowance – A simple, HMRC-approved payment to recognise the cost of working from home.
- Office equipment & technology – Laptops, tablets, software, chairs and desks can all be funded by the business if needed for work.
- Mileage for business journeys – Still a straightforward way to reimburse yourself efficiently.
- Gym membership or wellbeing benefits – Not usually tax-free, but again often cheaper through the company depending on how it’s structured.
- Professional memberships and subscriptions – If relevant to your work, these can be paid for by the company.
The principle is simple:
The more the business can legitimately cover, the less pressure there is on your personal income.
Finally… You’re Still in a Strong Position
Yes, dividend tax is rising but this doesn’t change the core advantages of running your own business. You still have:
- Autonomy
- Flexibility
- Control over how and when you get paid
- Opportunities to adapt and plan
And with a few sensible adjustments, you can protect your take-home pay and continue building a business that supports your life, not the other way around.
Worried About Your Own Numbers? Let’s Talk.
Every business owner’s situation is different, especially if you have multiple income sources or want to stay within certain tax bands.
If you’d like a clear, personal plan ahead of April 2026, we’re here to help.
A short conversation can give you confidence, clarity and a practical way forward.
Get in touch — you don’t have to navigate this alone.
