How it's calculated
Dividends are taxed after your other income. For 2026/27:HMRC
- Your Personal Allowance (£12,570) is set against your salary first. Any part left over covers dividends.
- Salary is taxed at the normal Income Tax rates for where you live, including Scottish rates.
- Dividends sit on top of your salary in the UK tax bands. The first £500 is covered by the dividend allowance (taxed at 0%, but it still uses up band space). The rest is taxed at:
| Band your dividends fall in | Dividend rate 2026/27 |
|---|---|
| Basic rate (up to £37,700 of taxable income) | 10.75% |
| Higher rate (to £125,140) | 35.75% |
| Additional rate (above) | 39.35% |
The basic and higher dividend rates went up by two percentage points from April 2026. Scottish taxpayers pay the same dividend rates as the rest of the UK.GOV.UK
- National Insurance is due on the salary only, not on dividends. Company directors normally use an annual earnings period: 8% on salary between £12,570 and £50,270, while the company pays 15% above £5,000.GOV.UK (HMRC)
The formula
- Allowance on salary = min(Personal Allowance, salary); the rest of the allowance covers dividends.
- Taxable dividends = dividends − allowance left over.
- Dividend tax = Σ dividend rate × (taxable dividends above the £500 allowance in each band), counting your taxable salary first.
Worked example
GOV.UK's example: £29,570 of wages and £3,000 of dividends gives tax of 20% on £17,000 of wages, nothing on £500 of dividends and 10.75% on the other £2,500.GOV.UK The calculator gives dividend tax of £269.
A director paying themselves a £12,570 salary and £50,000 of dividends pays £8,396 dividend tax and takes home £54,174.
| Line | Year | Month |
|---|---|---|
| Salary | £12,570 | £1,048 |
| Dividends | £50,000 | £4,167 |
| Income Tax on salary (England & Northern Ireland) | £0 | £0 |
| Employee National Insurance on salary | £0 | £0 |
| Dividend allowance: £500 at 0% | £0 | £0 |
| Dividends at 10.75% on £37,200 | £3,999 | £333 |
| Dividends at 35.75% on £12,300 | £4,397 | £366 |
| Total personal tax | £8,396 | £700 |
| Take-home (salary + dividends) | £54,174 | £4,514 |
| Line | Year | Month |
|---|---|---|
| Salary | £50,000 | £4,167 |
| Dividends | £20,000 | £1,667 |
| Income Tax on salary (Scotland) | £8,982 | £749 |
| Employee National Insurance on salary | £2,994 | £250 |
| Dividend allowance: £500 at 0% | £0 | £0 |
| Dividends at 35.75% on £19,500 | £6,971 | £581 |
| Total personal tax | £18,948 | £1,579 |
| Take-home (salary + dividends) | £51,052 | £4,254 |
Assumptions and limitations
- Salary and dividends are your only income. Savings interest, rent and pension income are not included, and nor is the personal savings allowance.
- Dividends from shares held in an ISA or pension are tax-free and should be left out.
- The company's side is limited to employer National Insurance on the salary. Dividends must come from profits after Corporation Tax.
- Pension contributions and Gift Aid that would extend the basic rate band are not modelled.