The Autumn Budget 2025 has significant implications for limited company directors, particularly those who take income primarily through dividends rather than salary. Dividend tax rates rose by two percentage points from 6 April 2026, making the traditional low-salary, high-dividend model less tax-efficient than it was. Corporation Tax rates were left unchanged. Review your remuneration structure before or shortly after the start of the new tax year.
Dividend tax rises from April 2026
| Rate band | 2025/26 | 2026/27 | Change |
|---|---|---|---|
| Basic rate | 8.75% | 10.75% | +2% |
| Higher rate | 33.75% | 35.75% | +2% |
| Additional rate | 39.35% | 39.35% | No change |
| Dividend allowance | £500 | £500 | No change |
The dividend allowance remains at £500 for 2026/27. Dividends within this allowance are still tax-free. Amounts above the allowance are taxed at the rates above depending on which income tax band they fall into.
Optimal salary for 2026/27
The most common advice for director-shareholders is to take a salary up to the National Insurance Primary Threshold (£12,570 for 2026/27) to maximise the personal allowance without incurring NIC. Some directors take salary to the Secondary Threshold (£5,000 for 2026/27) to avoid employer NIC where there is no Employment Allowance available.
The optimal salary/dividend split for each director depends on their total income, other income sources, and whether the company qualifies for Employment Allowance. With dividend tax rates now higher, the tax efficiency gap between salary and dividends has narrowed. Your accountant should model the optimal split for your specific circumstances.
Corporation Tax: no changes
Corporation Tax rates were confirmed unchanged for 2026/27:
| Profits | Rate |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,001 to £250,000 | Marginal relief applies |
| Over £250,000 | 25% (main rate) |
Capital allowances changes
For companies that invest in plant, machinery, or equipment, two important changes apply from 1 April 2026:
- The main pool writing down allowance (WDA) falls from 18% to 14%.
- A new 40% first-year allowance is available for plant and machinery with an expected useful life of 25 years or less.
Full expensing (100% first-year allowance on qualifying new plant and machinery) remains in place for incorporated businesses and is unaffected by these changes.
Salary sacrifice pension cap from 2029
From April 2029, a £2,000 annual cap applies to the amount of salary that can be sacrificed for pension contributions and attract full NIC relief. Contributions above £2,000 will attract National Insurance from that date. For most director-shareholder structures where pension contributions are made as employer contributions rather than salary sacrifice, this change has limited impact. However, if you operate salary sacrifice arrangements for employees, review these now.
EOT CGT relief reduced (immediate change)
The CGT exemption on qualifying sales to Employee Ownership Trusts (EOTs) reduced from 100% to 50% with effect from 26 November 2025. If you were considering an EOT exit, this change significantly affects the tax efficiency of that route. Seek specialist exit planning advice.
Planning for 2026/27
- Model your optimal salary and dividend split with an accountant based on the new dividend tax rates.
- Consider pension contributions to reduce company profits and personal tax liability.
- If your company plans to invest in plant or machinery, review timing to benefit from the 40% first-year allowance.
- Ensure Corporation Tax returns and payments are submitted on time: the late filing penalty doubled to £200 from 1 April 2026.
- If you are considering a business sale or exit, take specialist advice given changes to EOT relief and BADR.