Most limited company directors have used the same approach to paying themselves for years. Low salary. High dividends. It works — or it did. From 6 April 2026, the calculation changed. If you haven't reviewed your remuneration strategy since the new tax year started, now is the time.
What's Actually Changed
Two dividend tax rates increased on 6 April 2026.
The basic rate moved from 8.75% to 10.75%. The higher rate moved from 33.75% to 35.75%. The additional rate (39.35%) stayed the same. Your £500 dividend allowance remains unchanged.
Two percent doesn't sound dramatic. But applied to a full year of dividends, on top of a corporation tax rate of up to 25% and frozen income tax thresholds, the cumulative effect is real.
A director taking £50,000 in dividends this year will pay close to £1,000 more tax than last year — for doing nothing differently.
Why the Standard Model Is Under More Pressure
The traditional approach — salary at the personal allowance (£12,570), rest as dividends — made sense when dividend tax was low. The gap between dividend tax and income tax was wide enough to make the decision obvious.
That gap has been closing for years. It's narrower now than it's been in a long time.
For directors paying corporation tax at the full 25% rate, the combined tax burden on extracting profit has shifted enough that the old default no longer automatically wins. In some cases, taking more as salary — or routing profits into a pension — may produce a better overall outcome.
There's no universal answer. But there is a universal question worth asking: have you actually run the numbers for 2026/27?
The Hidden Impact: Director's Loan Accounts
There's a less obvious consequence worth knowing.
The S455 tax charge — applied to overdrawn director's loan accounts — is linked to the dividend upper rate. That rate is now 35.75%. If your loan account has been in the red, the tax cost just increased too.
It's the kind of thing that doesn't make headlines but does affect your year-end tax bill.
What to Think About Now
This isn't a crisis. Dividends are still one of the most tax-efficient ways to extract profits from a limited company. But the right structure for 2026/27 deserves a deliberate decision, not a repeat of last year.
Here's what's worth reviewing:
- Your salary level. Is £12,570 still the right number, or does adjusting it improve your overall position?
- Pension contributions. Employer contributions are corporation tax-deductible and don't attract dividend tax or income tax. For many founders, this is the most efficient extraction route available right now.
- Dividend timing. If you pay dividends throughout the year, the date they're declared matters — especially around the tax year boundary.
- Your overall income picture. If you have income from multiple sources — property, investments, other directorships — the interaction with dividend rates can push you into a higher band faster than expected.
- Your company's profit level. Whether you pay corporation tax at 19% or 25% changes the maths significantly.
What Founders Should Do Now
The best move is a fresh conversation with your accountant — not a quick assumption that last year's approach still holds.
A proper remuneration review for 2026/27 should cover your salary, dividend, and pension split; the corporation tax rate your company pays; your personal tax position including any other income; and how the new dividend rates interact with your specific circumstances.
It doesn't need to be complex. But it does need to be current.
The rules around how you pay yourself have changed meaningfully over the last few years. Dividend allowances have been cut. Corporation tax has risen. And now dividend rates have followed. Each change alone was manageable. Together, they represent a genuine shift in what efficient profit extraction looks like.
If your remuneration strategy hasn't been reviewed for 2026/27, speak to a Runway co-founder. We'll run the numbers and make sure you're not paying more than you need to. You can also learn more about our approach to tax planning for founder-led businesses.