Directors Guide to UK Income Tax Rates and Allowances 2024 to 2027

Crossing the £50,270 threshold pushes your dividend income into a higher tax band. Your personal allowance reduces by £1 for every £2 you earn over the £100,000 income limit, creating an effective 60% tax rate on that portion of your taxable income. Earning over £125,140 eliminates your tax-free personal allowance entirely.

In 2026/27, dividend tax rates increased for the first time since 2016, raising the cost of profit extraction for every director taking dividends above the £500 allowance.

The following UK tax rates for 2026/27, compared with 2024/25 and 2025/26, are essential for managing your tax liability.

UK Tax Rates and Allowances for 2024/25, 2025/26, and 2026/27

The tables below detail all UK income tax and dividend tax rates until April 2027.

While income tax bands are frozen, dividend tax rates for the 2026/27 tax year increased. For most company directors, four income thresholds: £12,570, £50,270, £100,000, and £125,140, determine your tax liability and the outcome of every remuneration decision.

UK Income Tax, Allowances, and Dividend Tax Rates (England, Wales & Northern Ireland)

The UK government has frozen income tax thresholds until April 2028.

How the 2026/27 Dividend Tax Increase Affects Your Profit Extraction Strategy

The increase in the basic and higher rates makes profit extraction more expensive in 2026/27 than in previous years. Directors who have not yet reviewed their remuneration strategy for the current tax year should do so now. Your current salary and dividend mix is no longer tax-efficient under the new rates, particularly if your total income sits near the £50,270 higher-rate threshold, where the combined effect of the rate increase and band entry is most significant.

Directors with retained profits from prior tax years should also confirm with their accountant that any dividends declared in 2026/27 are drawn from post-tax profits and properly documented, as the higher rates increase the cost of any compliance errors.

Scottish Income Tax Rates and Bands (Salary and Non-Savings Income Only)

The Personal Allowance does not apply if your total income exceeds £125,140. Scottish rates apply to salary and non-savings income only. HMRC taxes dividend income for Scottish taxpayers using the UK-wide rates regardless of where they live.

Scottish Directors Navigate the Split Tax System for Salary and Dividends

Directors resident in Scotland face a unique challenge: HMRC taxes their salary and dividends under two different systems. Salary is subject to the Scottish income tax bands, while HMRC taxes your dividend income using the UK-wide rates, regardless of where you live.

A Scottish director’s salary enters the higher rate band at £43,663, where it is taxed at 42%. Dividend income does not enter the UK higher rate band until total income exceeds £50,270, at which point it is taxed at 33.75% in 2024/25 and 2025/26, rising to 35.75% from 6 April 2026. Both thresholds can trigger in the same tax year, requiring you to plan remuneration around two separate higher-rate points simultaneously. For directors in Scotland, the £12,570 optimal salary strategy is tax-inefficient because HMRC taxes their salary and dividends under two different systems.

In 2026/27, the intermediate rate band narrowed as its lower boundary rose from £27,492 to £29,527, meaning slightly less of a Scottish director’s salary is taxed at 21% compared to previous years. The upper boundary remains at £43,662.

Other Key Tax-Free Allowances

The allowances below apply UK-wide and are relevant to directors who are married, have capital gains, or earn self-employment income alongside their director’s remuneration.

¹ A spouse can only transfer the Marriage Allowance if the recipient’s total income remains within the basic rate band. If the recipient’s income crosses £50,270, the couple loses the allowance entirely for that tax year.

How HMRC’s Tax Order Pushes Your Dividends into Higher Tax Brackets

The Income Tax Act 2007 established a fixed, unalterable sequence for how HMRC calculates the income tax you pay. The law requires HMRC to tax your dividend income last, pushing it into the highest possible tax band and increasing your personal tax liability for the tax year. The sequence is:

1. Salary and non-savings income
2. Savings interest
3. Dividend income

Your salary first uses up the £12,570 personal tax allowance. Any other non-savings income, like property rentals, then fills the lower tax bands, leaving HMRC to tax your dividend income at higher income tax rates.

Navigate 4 UK Tax Thresholds to Minimise Your Tax Bill

The most tax-efficient remuneration strategies for 2026/27 focus on four income thresholds: £12,570, £50,270, £100,000, and £125,140. Each threshold triggers different income tax rates and bands, dramatically affecting the amount of tax you pay. Managing your total income to stay below these specific tax thresholds is the core of tax-efficient remuneration.

Set Your Director’s Salary at £12,570 for Maximum Tax Efficiency

A salary of £12,570 uses your full tax-free personal allowance, meaning you pay no income tax on this amount. The salary also sits below the employee National Insurance threshold, so you avoid employee NI contributions while still earning a qualifying year for your State Pension.

The £12,570 salary strategy is optimal only if you have no other non-savings income for UK tax purposes. HMRC applies your personal tax allowance to other income sources, such as property rental income, before applying it to your salary. If you have £4,000 in rental income, it consumes the first £4,000 of your personal allowance. To remain tax-free, you must lower your director’s salary to £8,570.

Your company must pay employer National Insurance on salaries above the secondary threshold. The following National Insurance thresholds and rates for 2024/25, 2025/26, and 2026/27 demonstrate this approach.

Source: GOV.UK, HMRC National Insurance rates and allowances.

Your limited company pays the 15% employer NI rate on salary above the £5,000 secondary threshold. For a £12,570 salary, employer NIC in 2025/26 and 2026/27 is £1,135.50. In 2024/25, the same salary cost £464.74 in employer NIC, as the rate was 13.8% and the secondary threshold was £9,100.

At profit levels around £50,000, the 2026/27 dividend tax rate increase to 10.75% (basic) and 35.75% (higher) has reduced the tax advantage of the salary-and-dividend structure compared to operating as a sole trader. Directors at this profit level should model both structures before assuming incorporation remains the most tax-efficient choice.

Stay Below £50,270 to Avoid Higher-Rate Tax on Salary and Dividends

Once your total income exceeds £50,270, you enter the higher-rate tax band. HMRC taxes any additional salary at 40%, and your dividend income falls into the higher dividend rate. In 2024/25 and 2025/26, that rate was 33.75%. From 6 April 2026, it is 35.75%.

The practical consequence for 2026/27 is that every £1,000 of dividend income above this threshold now costs £357.50 in tax, compared to £337.50 in the previous two tax years. For a director taking £20,000 of dividends above the £50,270 threshold, the rate increase alone adds £400 to their annual tax bill.

The table below shows the tax cost of £10,000 in dividends just above this threshold, comparing 2025/26 and 2026/27:

A director whose total income sits just below £50,270 pays 8.75% on their dividend income in 2026/27. The same director earning £10,000 more in dividends, crossing the threshold, pays 35.75% on every pound above it. On that £10,000 alone, the tax difference is £2,700 in 2026/27, compared to £2,500 in the previous two tax years. The threshold has always been significant. In 2026/27 it is more expensive to cross than at any point since the current dividend tax system was introduced in 2016.

The closer your total income sits to this threshold, the more urgent it is to review whether your current dividend level remains efficient or whether retaining more profit in the company makes better sense. The threshold has always been significant. In 2026/27 it is more expensive to cross than at any point since the current dividend tax system was introduced in 2016.

Avoid the £100k “Tax Trap” to Escape a 60% Effective Tax Rate

When your adjusted net income exceeds £100,000, your personal allowance reduces by £1 for every £2 earned above that level. The reduction continues until your allowance reaches zero at £125,140. On income between those two points, you pay 40% income tax while simultaneously losing tax relief worth 20%, creating an effective marginal rate of 60%.

To make that concrete: a director earning £110,000 has lost £5,000 of their personal allowance. That £5,000 is now taxable at 40%, adding £2,000 to their tax bill on top of the standard higher-rate tax already due. In 2026/27, any dividend income in this range is also subject to the higher dividend rate of 35.75%, making the trap more expensive than in previous years for directors with a mixed income position.

Making a personal pension contribution is the most effective way to escape. The contribution reduces your adjusted net income directly. Contributing enough to bring your income below £100,000 fully restores your £12,570 personal allowance and eliminates the 60% effective rate entirely.

Prepare for the Total Loss of Your Personal Allowance at the £125,140 Cliff Edge

At £125,140, the taper is complete and your personal allowance is gone. All income above this point is taxed at the additional rates: 45% on salary and 39.35% on dividends. The additional rate dividend tax is unchanged in 2026/27, making this the one threshold where the April 2026 rate changes have no direct impact.

Directors approaching this level should use pension contributions, Gift Aid donations, and strategic dividend timing to keep total income below the cliff edge where possible.

UK Tax Obligations on Salary and Dividends for Non-Resident Directors

International founders can form and own a UK limited company without being UK residents. However, HMRC applies UK tax rules to any income you draw from the company, regardless of where you live.

• Right to Form vs. Right to Work: Forming a UK company is separate from the right to work in the UK. Company registration does not grant immigration status or permission to physically work in the country.
• UK-Sourced Income: Salary and dividends from a UK company are UK-sourced income. You are liable for UK income tax on this income, even if you are not a UK resident and the money is paid into a foreign bank account.
• Double-Taxation Treaties (DTTs): The UK has DTTs with over 130 countries to prevent double taxation on the same income. Under most UK double-taxation treaties, you pay UK tax first and then claim a foreign tax credit in your country of residence to offset the tax paid.
• Self Assessment Requirement: As a non-resident director with UK-sourced income, HMRC requires you register for and file a UK Self Assessment tax return each year to declare this income and pay the correct UK tax.
• Abolition of Remittance Basis: From April 2025, the remittance basis for non-domiciled individuals is abolished. While UK company income was always taxable in the UK, the abolition affects how your other worldwide income is treated if you are a long-term UK resident.

In 2026/27, non-resident directors face the same dividend tax rate increases as UK residents. Any dividends drawn from a UK company this tax year are taxed at the new rates of 10.75% (basic) and 35.75% (higher), regardless of where the director is resident.

Report Salary via PAYE and Dividends via Self Assessment

Because salary and dividends are taxed differently, you must report them through two separate systems with distinct rules and deadlines: PAYE for salary and Self Assessment for dividends.

Salary Through Company PAYE

Your company uses the Pay As You Earn (PAYE) system to report your salary. The system requires your company to deduct income tax and National Insurance contributions directly from your earnings. HMRC provides your company with a tax code, which reflects your personal tax allowance and dictates the precise amount of tax to deduct.

Your tax code can change, so check it at the start of each tax year. PAYE calculates tax cumulatively, so any over- or under-payments adjust automatically throughout the year. While 1257L is the most common code for a UK resident in the 2025/26 and 2026/27 tax years, you can find a full list of tax codes on the GOV.UK website.

Directors who adjusted their dividend levels in response to the April 2026 rate increase should check that their tax code for 2026/27 reflects their updated income position.

Declare Your Dividends via Self Assessment.

Company directors must file a Self Assessment tax return each year to declare dividend income over the £500 dividend allowance. On your tax return, you declare all your taxable income from every source, including earnings from sources that trigger capital gains tax, such as the sale of assets. You also claim any available tax allowances or reliefs, such as the marriage allowance or deductions for pension contributions. HMRC uses the income and allowance details on your return to calculate your final personal tax bill. You must submit your online tax return and pay any tax owed by the 31 January deadline following the end of the tax year. For the 2026/27 tax year, the online filing and payment deadline is 31 January 2028.