From 6 April 2026 the ordinary dividend rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. For an incorporated practice paying a small salary and taking the rest as dividends, that is the most material 2026/27 change — and it is usually not the biggest number in the calculation.
Article · 10 June 2026
If your practice is a limited company and you take a small salary with the rest as dividends, your 2026/27 tax bill went up on 6 April 2026 without you doing anything. The ordinary dividend rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate is unchanged at 39.35% and the dividend allowance remains £500.
Two percentage points sounds small. On a normal owner-director profile it is a four-figure sum, and it arrives alongside a second effect that is usually larger and much less well understood: the associated-companies divisor, which cuts the corporation tax thresholds before a penny is extracted.
| Band | 2025/26 | From 6 April 2026 |
|---|---|---|
| Ordinary rate | 8.75% | 10.75% |
| Upper rate | 33.75% | 35.75% |
| Additional rate | 39.35% | 39.35% |
| Dividend allowance | £500 | £500 |
Corporation tax did not change. For the financial year beginning 1 April 2026 the small profits rate is 19% on profits up to £50,000 and the main rate 25% on profits over £250,000, with Marginal Relief in between at a standard fraction of 3/200. That produces an effective marginal rate of 26.5% on each pound of profit between the two limits. The structure has applied since 1 April 2023.
Income tax thresholds did not change either, and will not: the personal allowance of £12,570 and the basic rate limit of £37,700 are frozen to 5 April 2031 following Budget 2025. Frozen thresholds and a higher dividend rate compound quietly each year as practice profits rise.
Take an incorporated single-site practice with £60,000 of taxable profit after the owner-director's salary of £12,570 and the employer National Insurance on it. Corporation tax as a standalone company: 25% of £60,000 is £15,000, less Marginal Relief of 3/200 x (£250,000 − £60,000) = £2,850, giving £12,150. That leaves £47,850 to distribute. Figures illustrative throughout.
The £12,570 salary uses the personal allowance exactly, so the whole dividend is taxable income. The first £500 falls in the dividend allowance at 0%. The basic rate band then covers £37,700 of taxable income, so £37,200 of dividend is taxed at the ordinary rate and the remaining £10,150 at the upper rate.
Two points a director takes from that arithmetic. The rise applies to everything above the £500 allowance, at both rates, so there is no band where it is avoided. And the shortcut is reliable: 2% of your dividends less £500 is the extra cost, whatever your split between the ordinary and upper rates.
The £50,000 and £250,000 corporation tax limits are divided by one plus the number of associated companies, and reduced proportionately for short accounting periods. Association is not only about shareholdings: it can arise through substantial commercial interdependence — financial, economic and organisational links between the companies.
A veterinary group of companies assembles itself almost by accident. A practice company. A property company holding the freehold and charging rent. A personal service company one of the vets uses for locum work elsewhere. Three companies under common control means two associated companies each , so a divisor of three. The limits become £16,667 and £83,333.
Same £60,000 of profit, illustratively:
Put the two together and follow the same £60,000 all the way to the owner's bank account.
Notice that the combined figure is less than £947 plus £2,500. The extra corporation tax shrinks the pot available to distribute, so part of the dividend that would have been taxed at 35.75% never gets paid. That is a genuine effect and it is why bolting two rate changes together in your head overstates the answer. It is also a warning about the direction of the error: people who model the dividend rise alone are looking at the smaller of the two problems.
Employer National Insurance is 15% on earnings above a secondary threshold of £5,000 a year. On a £12,570 salary that is (£12,570 − £5,000) x 15% = £1,135.50 of employer NIC, which is a real cost of the low-salary strategy rather than a rounding item.
The Employment Allowance is £10,500 for 2026/27 and the £100,000 liability cap was removed from April 2025, so larger employers can now claim. But the eligibility rule bites exactly where an owner-director wants it: a company with only one director must not have that director as its only employee liable for secondary Class 1 National Insurance. A practice with nurses and reception staff on the payroll will normally qualify; a single-director locum company normally will not, and the allowance is also unavailable for workers within the off-payroll rules.
None of the above answers whether a practice should be incorporated. That question turns on how much profit actually leaves the business — a company retaining profit for equipment, a fit-out or a purchase is in a different position from one distributing everything each year — plus the property, pension and succession position. The figures above are illustrative and the arithmetic is shown so it can be checked; they are not a recommendation for any particular structure.
The structure comparison on your own figures is what the incorporation calculator is for, with the reasoning set out in the incorporation guide and the service side on incorporation for vets. Equipment timing is in the capital allowances guide. If several companies are involved, multi-site and groups covers the associated companies problem properly. This is general information, not advice on your own affairs.
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The ordinary dividend rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate is unchanged at 39.35% and the dividend allowance remains £500. Nothing changed in corporation tax, where the small profits rate is 19% up to £50,000 and the main rate 25% above £250,000 with Marginal Relief between at a standard fraction of 3/200. Income tax thresholds are frozen to 5 April 2031, with a personal allowance of £12,570 and a basic rate limit of £37,700, so a rising profit share meets a higher dividend rate against a static band every year.
Two per cent of your dividends above the £500 allowance, at both the ordinary and upper rates, so it is easy to estimate. On an illustrative £47,850 of dividends the extra cost is £947, because £47,850 less the £500 allowance is £47,350 and 2% of that is £947. Checking the long way gives the same answer: £37,200 at 10.75% plus £10,150 at 35.75% is £7,627.63, against £6,680.63 on the old rates. There is no band in which the rise is avoided, and the shortcut holds whatever your split between the two rates.
The £50,000 and £250,000 corporation tax limits are divided by one plus the number of associated companies, so companies under common control share one set of thresholds. A practice company plus a property company holding the freehold plus a locum personal service company gives a divisor of three, cutting the limits to £16,667 and £83,333. On an illustrative £60,000 of profit that raises corporation tax from £12,150 to £14,650, an extra £2,500. Association can arise through substantial commercial interdependence — financial, economic and organisational links — not only through shareholdings.
That is not what the arithmetic points to on its own. Salary attracts employer National Insurance at 15% above a £5,000 secondary threshold, which on a £12,570 salary is £1,135.50, plus employee National Insurance and income tax at the individual's marginal rate, and it reduces company profit. Dividends carry no National Insurance but are paid from profit that has already borne corporation tax. Which is better depends on your profit level, the number of associated companies, whether the Employment Allowance of £10,500 is available, and how much profit you intend to retain rather than extract.
Usually yes if it employs staff beyond a single director, and usually no if it does not. The allowance is £10,500 for 2026/27 and the previous £100,000 liability cap was removed from April 2025, so size is no longer a bar. The restriction that matters is that a company with only one director must not have that director as the only employee liable for secondary Class 1 National Insurance. A practice employing nurses, reception and support staff will normally qualify; a single-director locum company normally will not, and the allowance is also unavailable for workers within the off-payroll rules.
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