Tax on dividends is paid by the shareholder, not the company, and for the owner-director of a limited company it is usually the larger half of their personal tax bill. There is an allowance below which no tax is due, and above it three rates that depend on the income tax band the dividend lands in once it is added to salary and everything else. This page is written for the director asking how much tax they will pay on the dividends the company declared this year: the allowance, the rates, how the band is found, what the company itself pays, and the worked example that the free calculator on this site turns into your own figures. It is HMRC's arithmetic as gov.uk sets it out, cited below, and not advice on what your company should declare.
The allowance comes first, then the band
The dividend allowance is £500 a year, per gov.uk, and dividend income inside it is not taxed. Dividend income also sits inside any unused personal allowance, £12,570 for 2026 to 2027, so a director with no salary and £13,070 of dividends pays nothing on them. Above those, the dividends are stacked on top of salary and other income, and the band the top of the stack reaches is the band that sets the rate. A dividend that pushes total income across the basic rate limit is taxed at two rates, the lower one on the part below the limit and the higher on the rest.
The three rates from 6 April 2026
For dividends above the allowance, gov.uk gives 10.75 percent at the basic rate, 35.75 percent at the higher rate and 39.35 percent at the additional rate for the 2026 to 2027 tax year. The basic and higher rates rose by two points from the 8.75 percent and 33.75 percent that applied in 2025 to 2026; the additional rate did not change. A director planning a dividend across the April boundary should notice that the same dividend declared a day earlier is taxed at the old rates, because the date of payment sets the year.
What the company pays, and what it does not
The company pays nothing on a dividend. Corporation tax has already been paid on the profit the dividend comes out of, at 19 percent up to £50,000 and 25 percent above £250,000 with marginal relief between, per gov.uk, and the dividend is a distribution of what is left. That is the reason a dividend has no National Insurance on it, for the company or the director, and the reason a dividend paid out of profit that has not been taxed is not a dividend at all but a loan, with the s455 charge that follows.
The worked example, and where the calculator takes it
A director on a £12,570 salary declaring £24,000 of dividends in 2026 to 2027 has £500 inside the allowance and £23,500 taxed. Their total income is £36,570, below the basic rate limit, so the whole £23,500 is taxed at 10.75 percent, which is £2,526.25. Change the salary, the dividend or the band and the free ltd company tax calculator on this site reworks it, with the corporation tax and the employer's National Insurance on the same sheet, because the dividend tax on its own says very little about whether the split was a good one.
Questions people ask about tax on dividends
Do I pay tax on dividends if I have no other income?
Only above the personal allowance and the dividend allowance together. With no salary, £12,570 of dividends sits in the personal allowance and the next £500 in the dividend allowance, so tax starts at £13,070 of dividends for 2026 to 2027, per the figures on gov.uk.
How do I pay the tax on my dividends?
Through self assessment. A director with dividend income above the allowances has to report it to HMRC, and the tax is paid with the return in January, with payments on account where the bill is large enough. The company deducts nothing at source, which is why the money for the tax has to be kept back.
Are dividends from an ISA taxed?
No. Dividends from shares held in an ISA are not taxed and do not count towards the allowance, per gov.uk. That is an investor's point rather than a director's, since a company's own shares cannot be held in one, but it is the most common reason two people with the same dividend income pay different tax.