Quick answer
Directors who take dividends usually need to file Self Assessment, because dividend tax is not collected through PAYE. For 2025/26 the first £500 is tax-free, then dividends are taxed at 8.75%, 33.75% or 39.35% depending on your income band.
Updated October 2026 · Figures based on 2025/26 rates
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Why directors file
Tax on dividends and other untaxed income is calculated on your personal return, along with any salary paid through the company payroll.
Dividend tax rates 2025/26
Basic rate 8.75%, higher rate 33.75% and additional rate 39.35%, after the £500 dividend allowance. Your total income decides which band applies.
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What to report
Dividends received from the company, salary and benefits, director’s loan balances and any other income such as rent or interest.
Paying the tax
Dividend tax is due on 31 January after the tax year. Setting aside money for each dividend avoids a large unexpected bill.
How dividend tax is calculated
Dividends are paid from a company’s profits after corporation tax, and the director or shareholder then pays personal tax on them. They are taxed after your other income, so they sit on top of any salary, pension or self-employed profit when HMRC works out which band they fall into. Everyone has a £500 dividend allowance, which means the first £500 of dividends is taxed at 0%, although it still uses up part of your basic-rate band. The rates for 2025/26 are 8.75% for basic-rate taxpayers, 33.75% for higher-rate and 39.35% for additional-rate. From April 2026 the basic rate rises to 10.75% and the higher rate to 35.75%, while the additional rate stays at 39.35%. These rates are confirmed in HMRC’s tax on dividends guidance.
Because the Personal Allowance is normally used against salary first, many directors take a salary of around the Personal Allowance level and the rest as dividends. Whether that is the best mix for you depends on National Insurance, pension contributions and other income, so see our guide on director salary versus dividends for the wider picture.
Worked example: £40,000 of dividends
This is an illustrative example for 2025/26 using England rates. A director takes a salary of £12,570, which is covered by the Personal Allowance, and £40,000 of dividends, with no other income.
| Step | Working | Tax |
|---|---|---|
| Salary | £12,570 covered by Personal Allowance | £0 |
| Dividend allowance | First £500 at 0% | £0 |
| Basic-rate dividends | £37,700 less £500 = £37,200 x 8.75% | £3,255.00 |
| Higher-rate dividends | £40,000 – £37,700 = £2,300 x 33.75% | £776.25 |
| Total dividend tax | £3,255.00 + £776.25 | £4,031.25 |
This is paid personally, usually by 31 January after the end of the tax year, through your Self Assessment return. If your tax bill is over £1,000 and less than 80% was collected at source, payments on account may also apply, which is common for directors with substantial dividend income. Our guide on dividend tax rates for 2026/27 shows how the increase from April 2026 changes the figures.
Records you need to keep
Dividends must be paid out of available profits, and each payment should be properly documented. Keep a dividend voucher for every payment showing the date, the company name, the shareholder and the amount, together with board minutes where appropriate and the company accounts that show distributable profits. If a company pays a dividend without sufficient profits it may be treated as an illegal dividend, which can create serious problems, so take professional advice if there is any doubt. Personal records of the dividends you received should be retained for five years after the 31 January filing deadline.
Common mistakes
- Forgetting to report dividends because the company paid corporation tax and the director assumes nothing more is due.
- Paying dividends without enough retained profit.
- Not setting money aside for the January bill, since no tax is deducted at source on dividends.
- Overlooking the effect of dividends on the Personal Allowance taper once adjusted net income passes £100,000.
- Ignoring the increase in dividend rates from April 2026 when planning.
- Missing the High Income Child Benefit Charge, which applies from £60,000 of income and is fully clawed back at £80,000.
Practical checklist
- Check the company has enough profit after corporation tax before declaring a dividend.
- Issue a dividend voucher and record the payment in the accounts.
- Total your dividends for 6 April to 5 April.
- Enter them on your Self Assessment return alongside salary and any other income.
- Put aside tax each time you take a dividend, ready for 31 January.
You may also want to read how shareholders report dividends, director tax return deadlines and penalties and tax on savings interest and dividends.
How SATR can help
Our qualified UK accountants file your director return online for a fixed fee from £199 + VAT. Visit our Self Assessment for company directors page to find out more.
This article is general information, not personal tax advice.
Planning ahead for the January bill
Because no tax is taken from dividends when they are paid, the bill arrives in one lump after the end of the tax year. A simple habit is to move a fixed percentage of every dividend into a separate savings account as soon as it is paid. The right percentage depends on your other income, but someone in the basic-rate band might set aside around a tenth of each dividend, while a higher-rate taxpayer would need considerably more. Remember too that if payments on account apply, the first instalment for the following year is due on the same 31 January date as the balancing payment, and the second falls on 31 July. Planning for both avoids an uncomfortable cash-flow surprise.
If the dividend arrangement is split between spouses who both own shares, each person has their own £500 allowance and their own bands, but the shareholdings and dividend rights must be genuine and properly documented. Anti-avoidance rules can apply where arrangements are artificial, so take advice before changing share structures.
Frequently asked questions
Do I pay tax twice on dividends?
The company pays corporation tax on profit, and you pay dividend tax personally, so the profit is taxed in two stages.
Can I take dividends without profits?
No. Dividends must come from distributable profits, otherwise they may be treated as a loan or salary.
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Do dividends count towards the £100,000 Personal Allowance taper?
Yes. Dividends form part of your adjusted net income, so large dividends can push you over £100,000 and reduce your Personal Allowance by £1 for every £2 above that level.
Is there tax deducted from dividends at source?
No. Dividends are paid without tax being deducted, so you normally pay the tax through Self Assessment, usually by 31 January.
What is the dividend allowance?
The dividend allowance is £500. Dividends within it are taxed at 0%, though they still count towards your income bands.
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The bottom line
Directors taking dividends almost always need to file Self Assessment, because no tax is deducted when dividends are paid. Keep a dividend voucher for every payment, check there are enough distributable profits first, and set money aside for the 31 January bill — especially with dividend rates rising from April 2026.
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