How do Autumn Budget 2025 announcements impact business owners’ decisions on profit extraction?

Following today’s Autumn Budget 2025, the rates of corporation tax remain unchanged at 19% or 25% but the Chancellor announced an increase of 2% on the ordinary and upper rates of dividend income tax from April 2026 as follows:-

• Ordinary 8.75% to 10.75%
• Upper 33.75% to 35.75%
• Additional rate of 39.35% remains unchanged

For many years, historically extracting surplus profits by way of dividend has been more tax efficient. The potential arbitrage on dividend extraction versus bonuses is one of the key considerations for owner managed businesses when reviewing profit extraction.

Following last year’s increase to employers national insurance,  amongst other relatively recent changes, we now also need to review the April 2026 dividend income tax rate increases. As a result, businesses owners and their advisers will need to take a keener review on the best approach.

We consider below the overall effective tax rates when extracting surplus profits by way of dividend or bonus. This is an indicative overview only assuming surplus profits of £50,000 for basic, additional and higher rate taxpayers. Some other assumptions are made in the calculations with a view to providing illustrative comparisons. We separate the rates dependent on whether the company is paying corporation tax at either 19% or 25%.

As illustrated below, , in 2026/27 the most tax efficient methodology of extracting surplus profits swings depending on the company’s circumstances. The general theme is that dividend extraction is slightly more efficient when the company is paying corporation tax at 19%, however, it becomes slightly more expensive when paying corporation tax at 25%. The differential is more significant for higher earners.

Basic rate taxpayers

• Company paying corporation tax at 19% – either 25% for dividends versus 29.4% for bonuses.
• Company paying corporation tax at 25% – either 30.4% for dividends versus 29.4% for bonuses

Higher rate taxpayers – see table below

• Company paying corporation tax at 19% – either 48% for dividends versus 48.3% for bonuses.
• Company paying corporation tax at 25% – either 51.8% for dividends versus 48.3% for bonuses

Additional rate taxpayers

• Company paying corporation tax at 19% – either 50.9% for dividends versus 52.7% for bonuses
• Company paying corporation tax at 25% – either 54.5% for dividends versus 52.7% for bonuses

Conclusion

There are, of course, other factors which should be taken into consideration as part of an owner-manager’s remuneration strategy.  For example, for companies making R&D claims, it may be beneficial for the owner-manager to take an increased salary in order to maximise the R&D tax credit claim and, in turn, reduce their overall effective tax rate.

As can be seen, there is no obvious uniform strategy for business owners and bespoke advice should be taken.

We will continue to keep an eye on developments and help our clients navigate their way through these challenging times. If helpful to discuss your remuneration and extraction strategy please reach out.

Example Comparison of Dividend v Bonus Extraction Effective Tax Rates – 2025/26 v 2026/27

For more Budget insights visit our 2025 Budget Hub.