Happy May, everyone! I hope you’re all enjoying the slightly better weather and that the order books are looking healthy. Here at SBS Essex, we’ve been busy helping our clients settle into the new tax year.

Now, I know "tax talk" is usually the last thing you want to deal with when you’ve got a site to manage, a crew to coordinate, and a million other things on your plate. But on 6 April 2026, some changes kicked in that specifically affect how many of you get paid. If you’re a limited company director, which many of our builders, sparkies, and chippies are, you probably use the "low salary, high dividend" model.

The government has decided to tweak the rates again, and while it might look like a small percentage on paper, it’s definitely going to change the "maths" on your take-home pay. Let’s break down what’s actually happening without the headache-inducing jargon.

What’s the Big Change?

The headline news for 2026 is that the rates of tax you pay on dividends have officially gone up. This wasn't a total surprise, but now that we’re living in it, it’s worth seeing how the numbers actually stack up.

From 6 April 2026, here is what the new landscape looks like:

• The Dividend Allowance: This has stayed at £500. This is the amount you can take in dividends before you pay a penny of tax on them. We remember the "good old days" when this was £5,000, but for now, £500 is what we’ve got to work with.
• The Basic Rate: This has jumped from 8.75% to 10.75%.
• The Higher Rate: This has moved from 33.75% to 35.75%.

Essentially, they’ve added a flat 2% increase across the two main bands. If you’re an additional rate taxpayer (earning over £125,140), that rate has also seen a similar nudge.

Why Does This Matter to You?

If you’re running a small construction or trade business as a limited company, you likely pay yourself a small monthly salary, just enough to keep your National Insurance record ticking over, and take the rest of your "pay" as dividends from the company’s profits.

It’s been the most tax-efficient way to operate for years. However, with the Corporation Tax rates where they are and these new dividend tax hikes, the "gap" between being a sole trader and a limited company is getting smaller.

Let’s look at a quick example. Imagine you’re taking £30,000 in dividends on top of your basic salary. Last year, a chunk of that would have been taxed at 8.75%. This year, that same chunk is hit at 10.75%. Over a full year, that’s extra money going to HMRC instead of into your new van fund or your family holiday. It’s not going to put you out of business, but it’s enough to be annoying!

Is the "Low Salary, High Dividend" Model Dead?

I get asked this a lot lately. Is it still worth having a limited company?

In most cases, yes. Even with the 2% increase, the limited company structure still offers benefits like limited liability (protecting your personal assets if a job goes south) and some flexibility in how you time your drawings.

However, it’s no longer a "set it and forget it" situation. We need to be a bit more tactical. For example, if you’re approaching the higher rate tax threshold, you really need to watch those dividend payments. Crossing into that 35.75% bracket is a much bigger "ouch" than staying in the 10.75% zone.

Tactical Moves: What Can You Do?

Since we can't change the laws, we have to change the strategy. Here are a few things we’re chatting about with our clients right now at SBS Essex:

1. Review Your Pay Structure

It might be time to crunch the numbers on your exact salary vs. dividend split. For some, increasing the salary slightly (if you have the room within your personal allowance) or looking at how bonuses are structured might make sense. Every business is different, so it’s not a one-size-fits-all fix.

2. Put More into Your Pension

This is one of the "big wins" that many tradespeople overlook. If your limited company pays directly into your pension, it’s usually treated as a business expense. This means you save on Corporation Tax, and because it’s a company contribution, it doesn’t count as a dividend or salary, so you aren't hit with that 10.75% or 35.75% tax. It’s essentially a way to take money out of the business for "future you" without HMRC taking a massive slice today.

3. Timing is Everything

If you’re having a bumper year, you might not want to take all your profits out as dividends right now. If you think next year might be quieter, or if you’re planning to retire soon, it might be worth leaving some profit in the business and taking it out in a future tax year when your other income is lower. This helps you stay within the lower tax bands.

4. Spouse/Partner Dividends

If your spouse or partner is involved in the business (and I mean actually involved: HMRC are quite strict on this!), you might be able to share the dividend burden. If they aren’t using their £500 allowance or their basic rate tax band, it can be a very legal and very effective way to keep more of your hard-earned cash in the household.

Why "The Maths" Matters More Than Ever

In the past, bookkeeping was often just about making sure the VAT was right and the accounts were filed on time. But as the tax system gets more complex, bookkeeping becomes about strategy.

You’re out there doing the hard graft: laying bricks, installing kitchens, wiring houses. You don’t have time to sit down with a calculator and figure out if a £2,000 dividend today is going to push you into a higher tax bracket six months from now.

That’s where we come in. At SBS Essex, we don’t just "do the books." We look at the "what if."

• "What if I buy that new digger this year?"
• "What if I take an extra dividend to pay for my daughter's wedding?"
• "What if I change my pay structure to mitigate these 2026 hikes?"

We’re here to help you navigate these changes so you can focus on the job at hand. We reckon that if you’re working hard for your money, you should keep as much of it as possible.

Final Thoughts

The 2026 dividend tax changes aren't the end of the world, but they are a reminder that the "easy" days of tax planning are shifting. A 2% increase here and a frozen allowance there can really start to nibble away at your profit margins if you aren't careful.

If you’re feeling a bit unsure about how your current pay structure looks under these new rules, don’t ignore it. Give us a shout! We’re a friendly bunch, and we’re more than happy to sit down (with a brew, obviously) and look at the numbers with you.

Whether you’re a sole trader thinking about going limited or a veteran limited company director who hasn't looked at their pay structure since 2020, now is the perfect time for a spring clean of your finances.

Stay safe on site, and let’s make 2026 a great year for your business!

Want to chat about your dividends? Drop Claire and the team a message at SBS Essex Ltd. We’ve got the spreadsheets ready!