Salary or dividends after the 2026/27 rise: the answer moved

Every few years a tax change quietly invalidates a thousand blog posts. April 2026 was one of those: from 6 April 2026, dividend rates rose from 8.75% to 10.75% basic and from 33.75% to 35.75% higher (the additional rate stays at 39.35%, the allowance at 500 GBP). The low-salary-plus-dividends playbook stopped beating sole trade for most people who spend what they earn. Checked 2026-08-22 against that gov.uk publication. Run your own numbers in the salary vs dividends calculator; here is the shape of the new answer.

Why the maths flipped

The company route pays twice: corporation tax on profit, then dividend tax when you take it out. That double pass was still worth it when dividends cost 8.75%. At 10.75/35.75, with employer NI at 15% above a 5,000 salary and a sole director barred from the Employment Allowance, the two-tax sandwich now usually exceeds the sole trader’s single pass. At 100,000 of profit fully distributed, our dividend-vs-salary engine puts the gap at about 4,850 in the sole trader’s favour for 2026/27 (69,311 kept against 64,457 on a 5,000 salary). Paying the 12,570 salary instead narrows the gap to about 4,100, still a loss.

Where the company still wins

Retention. Profit left inside the company pays 19-25% and stops there; the dividend layer only exists when money leaves. If you can live on part of your profit and reinvest the rest, or you are building toward a sale, the company’s deferral is real and can be large. Liability, corporate clients and pension contributions through the company are the other genuine reasons; a lower headline tax bill for a spender is no longer one.

If you already have the company

Do not panic-close it: incorporation was probably right under the old rates and unwinding has costs of its own. Recheck the salary level (5,000 vs 12,570 changed too), maximise employer pension contributions, which skip the whole sandwich, and decide how much profit genuinely needs to come out each year. The calculator’s salary field is there to test exactly this.