Knowledge Centre Category: Personal Tax

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Dividend

A dividend is a payment made by a company to its shareholders from post-tax profits, and is a common way for owner-managers to draw income from their business. Unlike salary, dividends are not subject to National Insurance, though they must only be paid when sufficient profit reserves exist.

Dividend Allowance

The dividend allowance is the amount of dividend income an individual can receive tax-free each year, currently £500 for the 2026/27 tax year. Any dividend income above this amount is taxed at dividend tax rates through self-assessment.

Dividend Tax Rates

In 2026/27 dividends are taxed at 10.75% (basic rate); 35.75% (higher rate) and 39.35% (additional rate). Dividends are taxed "last" i.e. all other income sources are set against personal allowances and tax bands, with dividends taxed at the highest rate of tax that you pay.

Electric Vehicles (EVs)

Electric Vehicles (EVs) are zero-emission vehicles are cars and vans that produce no direct exhaust emissions, and are subject to specific tax treatment including favourable benefit-in-kind rates for employees who use them as company vehicles.

Higher Rate Tax

Higher rate tax applies to income between £50,271 and £125,140, at which point dividend income is taxed at 33.75% and employment income at 40% (2026/27). Green Accountancy helps clients plan their salary and dividend mix to make the most of lower tax bands and avoid unnecessarily tipping into the higher rate.

Basic Rate Band

The basic rate band is the portion of your income taxed at the lowest income tax rate, currently covering income between £12,571 and £50,270 (2026/27). Making full use of your basic rate band each tax year — for example, by timing dividend payments carefully — is a key part of the tax planning Green Accountancy carries out with clients.

Personal Allowance

The personal allowance is the amount of income an individual can earn each year before paying income tax, currently £12,570 (2026/27). For owner-managers, taking a salary up to the personal allowance and topping up with dividends is typically the most tax-efficient approach to profit extraction.