Tax Update for Founders 2026-27

A practical summary for limited company owners and employers

From 6 April 2026, a number of measures announced in last year’s Budget take effect.

This summary focuses on areas most relevant to our clients:

• Directors extracting income via salary and dividends
• Owner-managed limited companies
• Businesses employing staff

For clarity, we’ve shown the current 2025/26 position alongside the new 2026/27 position where changes apply.

From 6 April 2026, dividend tax rates increase by 2 percent in the basic and higher rate bands.

Dividend Tax Rates

Dividend Allowance 

• £500 per individual per tax year

The allowance means the first £500 of dividend income is taxed at 0%, but it still counts towards your tax bands.

Why this matters

For directors extracting material dividends:

• £50,000 in the higher rate band will now cost an additional £1,000 in personal tax.
• Larger extractions increase the impact proportionally.
• The relative balance between salary and dividends is reduced.

For couples who both hold shares, the combined £1,000 dividend allowance remains available.

New statutory rates apply from April 2026.

National Minimum / Living Wage

Accommodation offset (daily):

• Increasing to £11.10

Why this matters

For service-based businesses and agencies employing junior or delivery staff:

• Payroll costs rise immediately
• Employer’s NIC increases proportionately
• Salary banding and pay compression may need review

For directors paying themselves a modest salary through payroll, we will ensure salary levels remain aligned with optimal tax thresholds.

Employer’s Allowance allows eligible businesses to reduce their annual Employer’s National Insurance liability.

From April 2026 the allowance increased to £10,500 per tax year. 

This means eligible employers do not pay the first £10,500 of Employer’s Class 1 National Insurance each tax year. In practice, this reduces payroll costs earlier in the tax year as the allowance is applied against Employer’s NIC liabilities through the payroll.

Change to Eligibility

Previously, businesses could not claim Employer’s Allowance if their Employer’s National Insurance liability exceeded £100,000 in the previous tax year.

This restriction has now been removed, meaning larger employers may now qualify where they did not previously.

Eligibility still depends on the wider rules set by HMRC. For example, the allowance generally applies to businesses that employ staff, so single-director companies with no other employees remain excluded.

Full eligibility guidance is available from HMRC:
https://www.gov.uk/claim-employment-allowance/eligibility

How it works in practice

Where a business qualifies:

• the allowance is claimed through payroll

• Employer’s National Insurance is reduced automatically during the tax year

• once £10,500 has been used, normal Employer’s NIC resumes

For clients who are eligible, we automatically claim Employer’s Allowance through payroll, so the relief is applied without requiring any action.

Income tax thresholds remain unchanged.

2026/27 Income Tax Bands (England)

• Personal Allowance: £12,570
• Basic rate: £12,571 – £50,270
• Higher rate: £50,271 – £125,140
• Additional rate: Over £125,140

The Personal Allowance reduces once income exceeds £100,000 and is fully withdrawn at £125,140.

Why this matters

Frozen thresholds mean:

• More income gradually moves into higher bands
• The effective marginal rate between £100,000 and £125,140 remains 60%
• Dividend increases compound this effect

For directors approaching six-figure income, extraction timing becomes increasingly important.

CGT Rates (2026/27)

• 18% (gains within unused basic rate band)
• 24% (gains above the basic rate band)
• Residential property: 18% / 24%
• Carried interest: 32%

Annual CGT Exemption

• £3,000 per individual

With the exemption now significantly reduced compared to previous years, planning around disposals has become more relevant.

BADR rates are increasing in stages. (Previously Entrepreneurs Relief) 

BADR Rates

• 14% for qualifying disposals in 2025/26
• 18% for qualifying disposals from 6 April 2026

Lifetime limit remains £1 million.

For clients considering:

• Company sales
• Share disposals
• Group restructures

The stepped increase may affect timing decisions.