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 of adjusted net income above £100,000, creating an effective marginal Income Tax rate of 60% on the affected slice of income. An adjusted net income of £125,140 or more eliminates your tax-free personal allowance entirely.

In 2026/27, the basic and higher dividend tax rates increased for the first time since April 2022, raising the cost of profit extraction for directors taking dividends above the £500 allowance.

2026/27 Income Tax Bands for England, Wales and Northern Ireland

2026/27 Scottish Income Tax Bands

Scottish rates apply to non-savings, non-dividend income. Savings and dividend income follow UK-wide rules.

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 2031.

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 may be less tax-efficient under the new rates, particularly if your income position sits near the £50,270 higher-rate threshold.

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The standard Personal Allowance is fully withdrawn when your adjusted net income reaches £125,140.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. Whether a £12,570 salary is tax-efficient for a Scottish director depends on the director’s other income, the company’s circumstances and its eligibility for the Employment Allowance.

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 or civil partner can transfer the Marriage Allowance only if the recipient remains a basic-rate taxpayer in England, Wales or Northern Ireland, or a starter, basic or intermediate-rate taxpayer in Scotland. The usual recipient income limit is £50,270 in England, Wales and Northern Ireland and £43,662 in Scotland.

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

Income Tax rules generally stack non-savings income first, followed by savings income and then dividend income. This means dividend income is normally considered after other income when determining which tax rates apply. The sequence is:

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

Salary and taxable property profit are both non-savings income. Together, they use the available Personal Allowance and lower tax bands before dividend income is considered.

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.

A £12,570 salary may not be tax-free if you have other taxable non-savings income. For example, if you have £4,000 of taxable rental profit after allowable expenses or the Property Allowance, a £12,570 salary would take your combined non-savings income above the standard Personal Allowance. The appropriate salary depends on your complete income position and the company’s circumstances.

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 £478.86 in employer NIC, as the rate was 13.8% and the secondary threshold was £9,100.

A single-director company cannot offset this cost with the Employment Allowance. Since 6 April 2025 the allowance has stood at £10,500, but HMRC bars any company whose only employee paid above the secondary threshold is a director. If your spouse also draws a qualifying salary above £5,000, the company can then claim it, cancelling the full £1,135.50 employer NIC on your £12,570 salary for 2026/27.

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 dividend income falls within the basic-rate band pays 10.75% on that taxable dividend income in 2026/27. Dividend income falling within the higher-rate band is taxed at 35.75%. On £10,000 of taxable dividends, the difference between the 2026/27 basic and higher rates is £2,500, the same 25-percentage-point gap as in 2025/26.

The closer your income position sits to the higher-rate threshold, the more important it is to review whether your current dividend level remains efficient or whether retaining more profit in the company makes better sense.

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

When adjusted net income reaches £125,140, the standard Personal Allowance is fully withdrawn. For taxpayers in England, Wales and Northern Ireland, additional salary above this level is generally taxed at 45%. For Scottish taxpayers, relevant non-savings, non-dividend income above £125,140 is taxed at the 48% top rate. Dividend income falling within the additional-rate band is taxed at 39.35%, which did not change in 2026/27.

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, a non-resident director’s UK tax position depends on where their duties are performed, their residence status, the applicable double-taxation treaty and their other UK income.

• 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.
• Director’s Salary: A non-resident director is generally liable for UK Income Tax on salary attributable to duties performed in the UK. Salary attributable to duties performed wholly outside the UK is not automatically subject to UK Income Tax, although special rules and the applicable double-taxation treaty must be considered.
• UK Company Dividends: Dividends from a UK company are UK-source income, but they are generally treated as disregarded income when limiting the UK tax liability of someone who is non-resident for the full tax year. They are not automatically taxed at the same UK dividend rates as dividends received by a UK resident. Temporary non-residence and other special rules can produce a different result.
• Double-Taxation Treaties: A double-taxation treaty can restrict or remove the UK tax charge and determine which country has primary taxing rights. A non-resident director should not assume that UK tax must always be paid first.
• Reporting Requirements: A non-resident director is not automatically required to file a UK Self Assessment return merely because they are a director or receive a UK company dividend. Whether a return is required depends on the type of UK income received, whether UK tax remains payable and the individual’s other circumstances.
• Tax in the Country of Residence: The director’s country of residence may tax their salary or dividends under its domestic rules. Professional advice may be necessary where income could be taxable in both countries.

Report Salary via PAYE and Taxable Dividends to HMRC

Because salary and dividends are taxed differently, salary is reported through PAYE, while taxable dividend income must be reported to HMRC through the appropriate method for the amount received and the director’s circumstances.

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.

Report Your Dividend Income to HMRC

Company directors do not automatically have to file a Self Assessment tax return solely because they are directors or because their dividends exceed the £500 Dividend Allowance. If dividend income exceeds the available Personal Allowance and Dividend Allowance, it must be reported to HMRC. If your total dividend income is up to £10,000 and you do not already file Self Assessment, you can report it directly to HMRC. If your total dividend income is over £10,000, you must register for and file Self Assessment.

If you file Self Assessment, you must declare all relevant income and gains on the return and claim any available allowances or reliefs. Online returns and any tax due are generally due by 31 January following the end of the tax year. For the 2026/27 tax year, the online filing and payment deadline is 31 January 2028.