Most director-shareholders are running a remuneration split that was set up years ago and never revisited. That's usually fine, until the rates underneath it move. This April, they moved again.
What's changed
Dividend tax rates rose by two percentage points from 6 April 2026: 10.75% at basic rate, 35.75% at higher rate, 39.35% at additional rate, against a dividend allowance that's been £500 since 2024. Meanwhile income tax and National Insurance thresholds are frozen exactly where they were, personal allowance at £12,570, higher rate kicking in at £50,270, employee NIC at 8% up to that point and 2% above it. Employer NIC sits at 15% above a £5,000 secondary threshold.
None of these are dramatic in isolation. Stacked together, they've quietly narrowed the gap that used to make dividends the obvious default.
Why the old split deserves a second look
The dividend-over-salary logic most founders are running dates back to lower dividend rates and a wider gap against employer NIC. That gap has been shrinking every year since, and this year's rise closes it further. For higher-earning director-shareholders, the maths that made a low salary plus large dividend the standard advice five years ago doesn't automatically hold today.
It's not that dividends have stopped making sense. It's that "the way we've always done it" is now a guess rather than a calculation.
What founders should do now
- Recalculate this year specifically, don't extrapolate from last year's split.
- Factor in employer NIC alongside personal tax; a small salary increase costs more at the company level than it used to.
- Check whether pension contributions are doing enough heavy lifting in your extraction strategy. Employer contributions sit outside this whole calculation and are often underused.
- If you're planning a larger dividend this year, model it against your marginal rate before you declare it, not after.
- Revisit annually. A structure that was right in 2023 isn't a decision, it's a default, and defaults are where the cost hides.
For the current dividend rates and allowance, see HMRC's guidance on tax on dividends.
Remuneration planning isn't a one-off setup, it's an annual recalculation. The founders getting the most out of it are the ones treating it that way.
If it's been a while since your salary and dividend split was actually modelled rather than assumed, that's worth twenty minutes of ours.
