19 January 2026 · Limited Companies · Dividends
Dividend timing for owner-managers in a changing tax year
How salary and dividend choices interact with Corporation Tax and personal allowances for small limited companies.
Owner-managers often ask whether to declare a dividend before or after 5 April. The answer depends on Corporation Tax rates for the accounting period, the directors’ other income, and whether the company has sufficient distributable reserves — not on a single calendar rule.
Salary first, then dividends
A modest salary that uses the Personal Allowance and maintains National Insurance contribution records remains a common base. Above that, dividends are usually more efficient than extra salary for many small trading companies, but the dividend allowance reductions in recent years mean personal tax can appear sooner than directors expect.
Accounting period versus tax year
Corporation Tax follows the company’s accounting period. Personal tax follows the tax year. Drawing a large dividend in March may suit cash flow yet push a director into a higher band for that tax year. During a Limited Company Tax Review we model both calendars side by side.
Reserves and paperwork
Dividends require adequate distributable profits and proper board minutes. We regularly see informal transfers labelled as dividends without the paperwork — a habit that creates risk if HMRC asks questions later.