Tax on limited company dividends – what you need to know

Limited companies may decide to distribute their retained profits to shareholders. It is a popular method for directors to draw down funds.

Here, we look at how dividends are taxed and how to declare them correctly.

How do you declare dividends?

You can only distribute funds from your company’s profits available for distribution. Before distributing funds to shareholders, you must account for the company’s liabilities and ensure you have sufficient distributable profits available.

If you have online accounting, you can see how much retained profit your company appears to have available to distribute at any time.

You need to upload all your invoices and expenses to ensure this figure is accurate. The figure will also need to take account of Corporation Tax and any other relevant accounting adjustments. If you don’t have online access to this information, your accountant can provide an accurate figure.

How dividends are taxed

Dividends above any available Personal Allowance and the Dividend Allowance are subject to dividend tax, which is split into three bands depending on the tax band the dividend income falls into. If dividend income falls between bands, you pay the appropriate rate for the amount falling in each band.

Income Tax Band	2026/27 taxable income band	Dividend Tax Rate
Basic	£0 – £37,700	10.75% (up from 8.75%)
Higher	£37,701 – £125,140	35.75% (up from 33.75%)
Additional	Over £125,140	39.35%

These bands refer to taxable income after allowances. Dividend income is added to your other income when determining which rate applies.

Unlike salaries, dividends are not subject to National Insurance Contributions, which is why many limited company directors opt to remunerate themselves with smaller salaries and take the bulk of their income in dividends.

The basic and higher dividend tax rates increased to 10.75% and 35.75%, respectively, from 6 April 2026.

Try our 2026/27 dividend and salary calculator

What is the dividend allowance?

A dividend allowance applies to the first £500 of dividend income that would otherwise be taxable. This means this part of your dividend income is taxed at 0%, but it still counts as income when working out which tax band applies.

Despite being in place for just two years, the Government reduced the dividend allowance from £5,000 to £2,000 on April 6th 2018. The Allowance was cut further to £1,000 from April 6th, 2023, and to £500 from April 6th, 2024 onwards.

What paperwork do I have to complete?

A limited company must properly authorise a dividend and keep a record of the decision, usually in board minutes or the appropriate company records.

The company has to provide all shareholders receiving the dividend with a dividend voucher which details:

• The date of the dividend distribution.
• The limited company’s name.
• Name and address of the shareholder.
• The number of shares held by the shareholder.
• The total dividend payable.
• A director’s signature.

You should post (or email) the voucher to all shareholders. Some online accounting packages will automatically generate vouchers.

How often can my company declare dividends?

There is no set limit on how often a company can pay dividends.

Some small companies pay quarterly or twice a year, while others pay more frequently.

Whatever the timing, each dividend must be properly declared and backed by sufficient profits available for distribution. Directors will often take a regular monthly salary alongside less frequent dividend payments.

What if you overpay dividends?

If you distribute dividends above the level of profits available for distribution, they are known as unlawful distributions.

Your accountant should be able to rectify errors by ensuring incorrect payments are repaid and, where appropriate, adjusting the company’s Director’s Loan Account.

However, it is far easier to take extra care and only make legitimate payments in the first place.

Dividend tax calculator

Find out how much tax you will be liable for in the current tax year – use our dividend tax calculator.

For previous tax years, try IT Contracting’s calculators.

Some company director dividend FAQs

Can I pay dividends if my company didn’t make a profit in its latest year’s accounts? Possibly. Dividends must be funded by cumulative profits available for distribution, not just this year’s results. If you have sufficient retained profits, regardless of when you generated them, you can distribute them. Verify the exact figure in your accounting software or with your accountant.

Do I have to include dividends on my Self Assessment tax return?
If you are required to submit a Self Assessment return, you should include your dividend income on it. Whether you need to submit a return in the first place depends on your wider tax circumstances. See our Self Assessment guide for company directors.

Can I pay dividends to a non-working shareholder (like a spouse)?
Yes. As long as they genuinely own the shares, they are entitled to dividends declared on those shares. This can make use of both partners’ tax allowances and bands, but the share structure must be properly set up and the tax rules around transfers between spouses and settlements should be considered.

If one shareholder wants to give up their entitlement to a particular dividend, see our guide to dividend waivers for limited company shareholders.

What happens if I forget to issue dividend vouchers?
Document all dividends properly. If your records are incomplete, speak to your accountant about correcting them. It is better to prepare dividend paperwork when the dividend is declared than to reconstruct it later.

Are interim and final dividends taxed differently?
No. All dividends are taxed the same way. The difference is procedural: interim dividends are normally authorised by the directors during the year, while final dividends are generally approved by the shareholders.

Can I reinvest retained profits instead of paying dividends?
Yes. You don’t have to distribute profits. Many directors leave money in the company to cover future expenses, invest in equipment, or smooth out income across quieter periods.

Will dividends affect my Child Benefit or Student Loan repayments?
They might. Dividend income forms part of your income for relevant tax calculations and can affect the High Income Child Benefit Charge or the amount of Student Loan repayments due.

HMRC explains the current dividend rates, allowances and reporting rules in its official dividend tax guidance.