For many owner-managed businesses, autumn is the time to take dividends. It can feel like a straightforward way to extract profits – but with recent changes to tax rates and allowances, directors are finding that dividends aren’t always as tax-efficient as they once were.
If you’re a company director, now is the time to review how dividends fit into your overall tax planning. Waiting until April could mean missed opportunities and an unnecessary tax bill.
The changing landscape of dividend tax
The government has gradually reduced the dividend allowance in recent years. For 2025/26, it remains at £500, meaning only a small portion of dividend income is tax-free. Anything above this is taxed at:
- 8.75% if you’re a basic-rate taxpayer
- 33.75% if you’re a higher-rate taxpayer
- 39.35% if you’re an additional-rate taxpayer
For directors who rely on dividends for income, those rates can quickly add up. And with the personal allowance frozen, more people are being pushed into higher tax brackets.
Why autumn matters
Many businesses declare dividends in the autumn to balance cashflow before year-end or in line with quarterly profits. But it’s easy to overlook the wider tax picture.
By checking your position now, you can:
- Avoid surprises in April. Estimate how much dividend tax you’ll owe and set funds aside.
- Use allowances wisely. Plan around your personal allowance, dividend allowance, and spouse’s allowance if relevant.
- Balance salary and dividends. A small salary combined with dividends is often efficient, but the right mix depends on your wider circumstances.
- Consider timing. Taking dividends before or after 6 April could change your tax bill.
What directors should review
- Your total income for the year – Not just dividends, but salary, rental income, or other sources. This determines your tax band.
- Spouse or partner allowances – Could income be shared to use both allowances efficiently?
- Pension contributions – These can reduce taxable income and preserve allowances.
- Business reserves – Make sure dividends are sustainable and not putting cashflow at risk.
- Future plans – If you’re planning investment, growth, or restructuring, dividend strategy should support that.
How Kingston Burrowes can help
Tax rules are shifting, and what worked last year may not be the best approach this year. At Kingston Burrowes, we help directors make informed decisions about salary, dividends, and tax planning so they can draw income confidently and efficiently.
We’ll look at your full financial picture – business and personal – and build a plan that minimises tax while supporting your goals.
Final thought: Dividends can still be a smart way for directors to pay themselves, but the landscape has changed. Don’t leave it until April to find out you’ve paid too much. Review your position now and make sure your hard-earned profits stay working for you.
Photo by Mikhail Nilov: PEXELS
