Dividends v Bonus After 2% Dividend Tax Increase from April 2026
Published / Last Updated on 05/12/2025
Confirmed in the Autumn Budget 2025, all investment income taxation rates will increase by 2% (except for additional rate dividends tax rate that remains unchanged.
Dividend income: After the £500 tax free dividend allowance, from April 2026, dividends are
- Currently taxed at 8.75% (Basic Rate Taxpayer), 33.75% (Higher Rate Taxpayer), 39.35% (Additional Rate Taxpayer),
- These tax rates increase respectively from April 2026 to 10.75%, 35.75% but additional rate taxes unchanged 39.35% in April 2026.
- This is treated as the highest part of your total income and is taxed last.
The Recurring Question: Do I Take Dividends or a Bonus?
|
Director with PAYE £12,570 |
|||
|
Income tax rate |
20% |
20% |
|
|
|
2026/27 |
2026/27 |
|
|
|
Pay Bonus |
Pay Dividend |
|
|
Corporation Tax Main & Small Rates |
|
25% |
19% |
|
|
£ |
£ |
£ |
|
Gross profit |
£20,000.00 |
£20,000.00 |
£20,000.00 |
|
Corporation tax |
N/A |
£5,000.00 |
£3,800.00 |
|
Dividend payable |
N/A |
£15,000.00 |
£16,200.00 |
|
Er’s NIC 15% |
£3,000.00 |
N/A |
N/A |
|
Bonus |
£17,000.00 |
N/A |
N/A |
|
Ee’s NIC 8% |
£1,360.00 |
N/A |
N/A |
|
Income or Dividend Tax |
£3,400.00 |
£1,612.50 |
£1,741.50 |
|
Net income from Bonus or Dividend |
£12,240.00 |
£13,387.50 |
£14,458.50 |
|
Assumes no Dividend Allowance (all used) and No Employers Allowance for National Insurance Contributions. |
|||
|
Director with PAYE £50,270 |
|||
|
Income tax rate |
40% |
40% |
|
|
|
2026/27 |
2026/27 |
|
|
|
Bonus |
Pay Dividend |
|
|
Corp tax rate |
Any |
25% |
19% |
|
|
£ |
£ |
£ |
|
Gross profit |
£20,000.00 |
£20,000.00 |
£20,000.00 |
|
Corporation tax |
N/A |
£5,000.00 |
£3,800.00 |
|
Dividend payable |
N/A |
£15,000.00 |
£16,200.00 |
|
Er’s NIC 15% |
£3,000.00 |
N/A |
N/A |
|
Bonus |
£17,000.00 |
N/A |
N/A |
|
Ee’s NIC 2% |
£340.00 |
N/A |
N/A |
|
Income or Dividend Tax |
£6,800.00 |
£5,362.50 |
£5,791.50 |
|
Net income from Bonus or Dividend |
£9,860.00 |
£9,637.50 |
£10,408.50 |
|
Assumes no Dividend Allowance (all used) and No Employers Allowance for National Insurance Contributions. |
|||
Comment
It would appear that broadly speaking, the position remains unchanged. Dividends remain the higher income route for directors of smaller businesses, with lower PAYE earnings but when directors start to earn in the higher rate band and the company pays higher rates of Corporation Tax at around 23% marginal rate or 25% full rate, then the argument for lower taxes swings towards PAYE and a Bonus.
