Dividend tax hike could cost company directors £600 a year – London Business News | Londonlovesbusiness.com

Freelancers, contractors, and company directors could see their take-home pay shrink by hundreds of pounds a year as upcoming changes to dividend taxation come into effect on 6 April 2026, according to analysis by tax compliance specialist Qdos.

From the start of the 2026/27 tax year, the basic dividend tax rate will rise from 8.75% to 10.75%, while the higher rate will increase from 33.75% to 35.75%.

The change will hit particularly hard those who pay themselves via a combination of salary and dividends through their own limited companies.

A typical company director taking around £50,000 annually in mixed income could face an extra £600 in tax each year, while someone earning £100,000 may see their tax bill rise by £1,400.

Qdos warned that the adjustments could reduce disposable income for tens of thousands of small business owners and contractors, many of whom rely on dividend payments to manage household budgets and business expenses.

The changes are part of the government’s broader effort to raise revenue and simplify the tax system, but critics say the timing is particularly difficult for those already navigating the economic pressures of high inflation, energy costs, and ongoing post-pandemic recovery challenges.

Tax experts advise company directors to review their salary and dividend mix before the new rates take effect and to consider strategies to minimise the impact, such as making tax-efficient pension contributions or spreading dividend payments over multiple tax years.

Commenting on the changes, Qdos CEO, Seb Maley, said: “With just weeks to go until the new rates take effect, now’s the time for company directors to review their remuneration strategy – and potentially, make use of the existing thresholds before they rise next month.

“Many directors of small limited companies structure their income through a combination of salary and dividends, which is a compliant way to operate. For someone taking just over £50,000 a year from their business, the increase in the basic dividend tax rate from 8.75% to 10.75% could mean paying roughly £600 more in tax each year. This nearly triples for someone paying themselves around £100,000 a year, to around £1,400 as a result of the higher rate changes.

“Alongside the need to map out a plan for these tax changes is the need for limited company directors to ensure their tax compliance. This is something HMRC will be paying very close attention to, in light of the new rates kicking in.”