Limited company guide
How the £500 dividend allowance and £12,570 personal allowance interact for company directors, the £100,000 taper, and how to sequence salary and dividends across a tax year.
Short answer
For 2026/27 the personal allowance is £12,570 and the dividend allowance is £500. Dividends are the top slice of income, so the personal allowance is normally set against salary first. The dividend allowance is taxed at 0% but still consumes band. Above £100,000 of adjusted net income the personal allowance tapers away at £1 for every £2, creating an effective 60% marginal band up to £125,140.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityFor 2026/27 the personal allowance is £12,570 and the dividend allowance is £500. Dividends are the top slice of income, so the personal allowance is normally set against salary first. The dividend allowance is taxed at 0% but still consumes band. Above £100,000 of adjusted net income the personal allowance tapers away at £1 for every £2, creating an effective 60% marginal band up to £125,140.
The order income is taxed in
The £500 dividend allowance
The 60% trap between £100,000 and £125,140
Planning across the year end, not at it
Before you act
Earnings and pensions first, then savings income, then dividends. That ordering is why a director's salary usually absorbs the personal allowance and dividends sit on top.
If you have no other income, a small salary plus dividends can cover the personal allowance with the salary and then use the basic rate band with dividends taxed at 10.75%.
It applies to everyone regardless of income, and it taxes the first £500 of dividends at 0%. It does not reduce the amount counted when deciding which band later dividends fall into.
Two shareholders each have their own allowance, which is one reason a genuine share split between working spouses is worth structuring properly rather than informally.
Adjusted net income above £100,000 removes £1 of personal allowance for every £2 of income. A dividend taken across that line is effectively taxed far above its headline rate.
The usual answers are an employer pension contribution from the company, which is not part of your personal income at all, deferring a dividend into the next tax year, or splitting drawings between spouses where shareholdings genuinely support it.
Model the full year in January, not in late March. Reserves, corporation tax due, the tax already collected through your code and any other income all affect the answer.
Use the salary and dividend calculator for a first pass, then check it against the company's actual distributable reserves.
Rates, thresholds and deadlines quoted here reflect the 2026/27 UK tax year. Check current GOV.UK guidance, or ask us, before relying on them for your own company.
Primary references
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Frequently asked
£500. It is taxed at 0% but still uses part of your basic rate band.
Yes, if you have no other income to absorb it. Income is taxed in order, and dividends come last.
Between £100,000 and £125,140 of adjusted net income the personal allowance tapers, so each extra pound is effectively taxed at around 60%.
An employer contribution from the company reduces company profit and does not count as your personal income, so it avoids the taper entirely, subject to the annual allowance.
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