How to Pay Yourself as a Director in 2026: Salary vs Dividends, With Worked Figures

If you own and run a limited company, you decide how the company's profit reaches your bank account, and the mix you choose can change your tax bill by thousands of pounds a year. This guide is for owner-directors of small UK companies in 2026. It explains the three main routes (salary, dividends and pension), the National Insurance thresholds that set the "right" salary for 2026-27, why the dividend tax rise in April 2026 changed the usual answer, how Employment Allowance works for single-director companies, and how the numbers play out for companies with £40,000, £60,000 and £100,000 of profit.

Quick answer

Most owner-directors pay themselves a small salary plus dividends. For 2026-27, a salary of £12,570 (the Personal Allowance and NI primary threshold) usually works best: no Income Tax or employee NI, and the salary plus the company's 15% employer NI on the slice above £5,000 are deductible for Corporation Tax. Take the rest as dividends, taxed at 10.75% in the basic rate band after the £500 allowance.

• Salary of at least £6,708 protects your State Pension record

• Sole director with no other employees: no Employment Allowance

• With another employee on payroll, Employment Allowance usually wipes out employer NI on a £12,570 salary

• Dividends need distributable profits, a board minute and a voucher

• Autumn Budget on 28 October 2026: re-check before April 2027

Your three ways to take money out

A limited company is a separate legal person, so its profit isn't yours until it's paid to you properly. GOV.UK sets out the routes: salary (and bonuses) through payroll, dividends to shareholders from profits, and reimbursed expenses for genuine business costs you've paid personally. Anything else you take is a director's loan, which has its own tax traps. Our director's loan account guide covers those.

Salary is a business cost. It reduces the company's taxable profit, so it saves Corporation Tax, but it's subject to Income Tax through PAYE, employee National Insurance (NI) and employer NI. To pay any salary, even to yourself, the company must register as an employer with HMRC and run payroll.

Dividends are paid from profit after Corporation Tax. They don't reduce the company's tax bill, but they carry no National Insurance at all, and dividend tax rates are lower than income tax rates at each band. That combination is why the usual approach is a modest salary topped up with dividends.

How company profit reaches you

Step 1

Company profit

Step 2

Salary + employer NI

deductible for Corporation Tax

Step 3

Corporation Tax

19%–25%

Step 4

Dividends

no National Insurance

Step 5

Dividend tax

10.75% basic rate

There's a third route that's often overlooked: employer pension contributions. These are normally deductible for Corporation Tax and carry no NI or Income Tax when paid in, within your annual allowance of £60,000. For directors who don't need all the profit now, they're often the most efficient of all. See our pension tax relief guide.

The 2026-27 numbers that matter

Four thresholds drive the salary decision, all from HMRC's rates and thresholds for 2026-27:

• Secondary threshold, £5,000: the company pays 15% employer NI on salary above this. It was £9,100 until April 2025 and the government has said it will stay at this level until April 2031.
• Lower Earnings Limit, £6,708: salary at or above this counts towards a qualifying year for State Pension, even though no employee NI is paid on it.
• Primary threshold, £12,570: you start paying employee NI at 8% above this. It matches the Personal Allowance, so salary up to here is free of Income Tax too, if you have no other income.
• Higher rate threshold, £50,270: total income above this, including dividends, moves into the higher rate band.

On the company side, Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with marginal relief in between. Those limits are divided between associated companies and cut for short accounting periods. Every pound of salary and employer NI saves Corporation Tax at the company's marginal rate, which is 26.5% for profits between £50,000 and £250,000.

Director pay thresholds (2026-27)

£5,000

Employer NI starts

15% above this

£6,708

Lower Earnings Limit

State Pension qualifying year

£12,570

Personal Allowance & employee NI threshold

Common optimal salary

10.75%

Basic rate dividend tax

Was 8.75% in 2025-26

Dividend tax in 2026-27

Dividends are taxed as the top slice of your income, after salary and other income. The first slice that falls within any unused Personal Allowance is tax free. Then the dividend allowance of £500 is taxed at 0%, though it still uses up part of your tax band. Anything above that is taxed at:

• 10.75% in the basic rate band;
• 35.75% in the higher rate band;
• 39.35% in the additional rate band.

The basic and higher rates went up by two percentage points on 6 April 2026, from 8.75% and 33.75%. That's what has shifted the salary calculation for many directors: with dividends taxed more heavily, the Corporation Tax saved by paying a bigger salary is worth more than the employer NI it costs. Our dividend tax guide covers the rates, reporting and Self Assessment in detail.

If your salary is £12,570, you can take dividends of up to £37,700 and stay within the basic rate band, so total income stays at or below £50,270. Tax on that full amount would be (£37,700 − £500) × 10.75% = £3,999. Above that, each extra £1,000 of dividend costs £357.50 in tax, so many directors stop at the higher rate threshold and leave further profit in the company.

Choosing your salary: £5,000, £6,708 or £12,570?

There are three common salary levels for a single director.

£5,000, the secondary threshold. No employer NI and no employee NI. But it's below the Lower Earnings Limit, so it doesn't count towards your State Pension record unless you have other qualifying earnings or credits. It leaves the most profit in the company for dividends, but it also gives the smallest Corporation Tax saving.

£6,708, the Lower Earnings Limit. You get a qualifying year for State Pension and some contributory benefits without paying any employee NI. The company pays 15% on £1,708, which is £256.20, and that NI is itself deductible.

£12,570, the primary threshold. No Income Tax and no employee NI if you have no other income. Without Employment Allowance, the company pays employer NI of £1,135.50 on the £7,570 above the secondary threshold. Both the salary and the NI cut Corporation Tax. With dividend tax at 10.75%, the extra Corporation Tax relief now outweighs the NI cost at every profit level in our examples.

The salary must be genuinely paid through payroll and reported to HMRC in real time. HMRC treats directors as employees, and works out their NI on an annual earnings period rather than pay period by pay period, so a director paid £12,570 in one lump in March pays the same NI as one paid monthly.

Employment Allowance: why single-director companies miss out

Employment Allowance lets an employer knock up to £10,500 a year off its employer NI bill. It would wipe out the employer NI on a £12,570 director's salary entirely. But GOV.UK is clear that a company can't claim if it has just one director and that director is the only employee liable for secondary Class 1 NI.

So it comes down to who else is on payroll above the £5,000 threshold:

• One director, no other paid staff: no Employment Allowance. Use the figures without it.
• Two directors both paid above £5,000, for example a husband and wife who both work in the business: the company can usually claim, so £12,570 each costs no employer NI.
• One director plus at least one employee paid above the threshold: the company can usually claim.

The allowance has to be claimed through your payroll software, and only one company in a group of connected companies can claim it. Don't add a family member to payroll just to qualify. The salary must reflect real work, or HMRC can challenge both the allowance and the deduction for Corporation Tax. Our employer National Insurance guide explains the allowance and rates.

Worked comparison: one director, £60,000 profit

Take Priya, the sole director and shareholder of a consultancy. The company has £60,000 of profit before paying her, no other employees and no associated companies, and she has no other income. She takes the whole post-tax profit as dividends. The figures use 2026-27 rates and are rounded to the nearest pound.

With 2026-27 rates, a £12,570 salary gives Priya about £800 more than £5,000 and about £560 more than £6,708, even though the company pays more employer NI. Taking everything as salary is the worst option by nearly £4,900, because of the combined Income Tax, employee NI and employer NI.

If Priya's company also employed a part-time assistant earning above £5,000, it could claim Employment Allowance. Her £12,570 salary would then carry no employer NI at all, and her take-home would rise to about £46,733.

How the answer changes with profit

The same approach holds at other profit levels, though the size of the advantage changes.

£40,000 profit. All profit is taxed at the 19% small profits rate. With a £12,570 salary and no Employment Allowance, take-home is about £31,633, against £31,170 at a £5,000 salary. With Employment Allowance, it's about £32,454.

£100,000 profit. The company is in the marginal relief band, so each pound of salary saves Corporation Tax at an effective 26.5%. With a £12,570 salary, dividends are about £67,176, which takes Priya's total income above the £50,270 higher rate threshold, so part of her dividends is taxed at 35.75%. Take-home is about £65,210, against £64,457 at a £5,000 salary. Many directors at this level would leave some profit in the company, pay more into a pension, or time dividends across tax years to stay in the basic rate band.

Above £100,000 of income. Your Personal Allowance starts to taper once adjusted net income passes £100,000, losing £1 for every £2 over. That creates a very high effective marginal rate, so take advice before drawing dividends that push you over this line.

Take-home by salary level, sole director with no Employment Allowance (2026-27)

Company profit	Salary £5,000	Salary £6,708	Salary £12,570
£40,000	£31,170	£31,274	£31,633
£60,000	£45,294	£45,530	£46,091
£100,000	£64,457	£64,627	£65,210

£40,000

Salary £5,000

£31,170

Salary £6,708

£31,274

Salary £12,570

£31,633

£60,000

Salary £5,000

£45,294

Salary £6,708

£45,530

Salary £12,570

£46,091

£100,000

Salary £5,000

£64,457

Salary £6,708

£64,627

Salary £12,570

£65,210

These figures assume no other income, all post-tax profit paid out as dividends in the same tax year, and no student loan. Your result will differ if you have a second job, rental income or savings income, live in Scotland (salary is taxed at Scottish rates, though dividends use UK rates), have associated companies, or want to keep cash in the business.

Paying dividends properly

A dividend is only lawful if the company has enough distributable profits, from the current year and earlier years, after Corporation Tax. GOV.UK's guidance on running a limited company sets out the paperwork for each dividend:

• hold a directors' meeting to declare the dividend, and keep minutes, even if you're the only director;
• prepare a dividend voucher showing the date, company name, shareholders' names and amount;
• give a copy to each shareholder and keep one for the company's records;
• pay dividends to all shareholders of the same class in proportion to their shares, unless the company has a valid structure that allows otherwise.

Monthly "dividends" taken without checking profits are a common problem. If the year-end accounts show there wasn't enough profit, the payments aren't dividends at all. They're usually treated as a loan from the company, recorded in your director's loan account, and if still outstanding nine months after the year end can trigger s455 tax at 35.75%. Keep up-to-date management accounts before each dividend.

Reporting and paying the tax

The company reports salary through payroll on each Full Payment Submission. Dividends aren't reported through payroll. You report them on your Self Assessment return if you have tax to pay on them; GOV.UK says anyone with dividends over £10,000 must complete a return. Dividend tax for 2026-27 is due by 31 January 2028, and if your bill is large enough you'll also be asked to make payments on account towards the following year. Our Self Assessment guide explains the deadlines.

Set aside cash for dividend tax as you take dividends. A simple rule for a basic rate taxpayer is to keep back about 11% of each dividend above the allowance. If you're heading into the higher rate band, keep back 36% of the slice above £50,270.

The Autumn Budget and other changes to watch

The Chancellor's Autumn Budget is on 28 October 2026. Owner-managed companies have seen several changes in recent Budgets: employer NI rose to 15% and the secondary threshold fell to £5,000 in April 2025, and dividend tax rose by two points in April 2026. Rates for savings and property income are due to rise by two points from April 2027, but no further dividend rise has been announced. Any change to dividend rates, NI thresholds, Employment Allowance or Corporation Tax could shift the best mix, so re-run your figures once the Budget is published and before the new tax year starts on 6 April 2027. We'll update this guide after the Budget.

Remember too that from January 2027 the unfair dismissal qualifying period for employees falls to six months under the Employment Rights Act 2025. That doesn't affect your own pay as a director-shareholder, but it matters if you're adding staff, for example to qualify for Employment Allowance.

Director pay checklist for 2026-27

0/9

• Company registered as an employer and director's salary run through payroll
• Salary level chosen: £12,570 for most; at least £6,708 for State Pension
• Employment Allowance claimed only if another employee is paid above £5,000
• Management accounts checked for distributable profits before each dividend
• Board minutes and dividend vouchers for every dividend
• Dividends planned to keep total income within £50,270 where possible
• Employer pension contributions considered for surplus profit
• Cash set aside for dividend tax and payments on account
• Figures re-run after the 28 October 2026 Budget

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Common mistakes

Copying last year's salary. Directors who settled on £5,000 or £6,708 when dividend tax was 8.75% may now be slightly worse off. Re-run the figures for 2026-27.

Claiming Employment Allowance as a sole director. If you're the only employee paid above the secondary threshold, the company can't claim, and HMRC can recover the allowance.

Taking dividends without profits. It turns the payments into a director's loan, with possible s455 tax and benefit-in-kind charges.

Forgetting other income. A second job, a pension or rental income uses up your Personal Allowance and basic rate band, so a £12,570 salary may then attract Income Tax.

Ignoring the company's cash needs. Paying out every pound of profit leaves nothing for VAT, Corporation Tax or a quiet month. Plan dividends around the company's tax diary as well as your own.

Official links

• Rates and thresholds for employers 2026 to 2027NI thresholds and rates
• Tax on dividendsDividend allowance and 2026-27 rates
• Employment AllowanceWho can claim, including single-director rule
• Corporation Tax rates and reliefsSmall profits rate, main rate, marginal relief
• National Insurance for company directorsAnnual earnings period
• Taking money out of a limited companySalary, dividends, paperwork, director's loans

What to do next

Pull up your company's latest management accounts, check distributable profits, and decide your salary for the rest of 2026-27, usually £12,570 for a single director. Then plan dividends to stay within the basic rate band where you can, and consider pension contributions for anything you don't need now. Use the budget planner to map your personal monthly draw against the company's cash, and read the Corporation Tax guide to understand how marginal relief affects your company. If you're still deciding on a structure, our sole trader vs limited company guide compares the overall tax.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What is the most tax-efficient director salary for 2026-27?

For most single-director companies it's £12,570, the Personal Allowance and employee National Insurance primary threshold. The company pays 15% employer NI on salary above £5,000, but the salary and that NI both reduce Corporation Tax, and with dividends now taxed at 10.75% the higher salary usually comes out ahead. Check your own figures, especially if you have other income.

Can a sole director claim Employment Allowance?

No. GOV.UK says a company can't claim Employment Allowance if it has just one director and that director is the only employee liable for secondary Class 1 National Insurance. If the company also employs someone else above the £5,000 threshold, such as a second director or a staff member, it can claim up to £10,500 a year off its employer NI bill.

What are the dividend tax rates for 2026-27?

From 6 April 2026, dividends above the £500 dividend allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The basic and higher rates each rose by two percentage points from 2025-26. Dividends within your unused Personal Allowance are tax free.

Why take dividends rather than all salary?

Salary above £12,570 costs the company 15% employer NI and costs you 8% employee NI plus Income Tax. Dividends come out of profits after Corporation Tax but carry no National Insurance, and the basic dividend rate is lower than the 20% Income Tax rate. For a company with £60,000 of profit, our example shows about £4,900 more in your pocket with a small salary and dividends.

Do I need to pay myself a salary at all?

You don't have to, but a salary of at least the Lower Earnings Limit, £6,708, gives you a qualifying year for State Pension and some benefits without any NI being deducted from you. Salary is also a deductible cost for the company, and regular payroll gives you a clear record of earnings for mortgage applications.

Can I take dividends if my company made a loss?

No. A company can only pay dividends out of distributable profits, current and retained. Money taken without enough profit isn't a lawful dividend. It's usually treated as a director's loan, which can trigger s455 Corporation Tax at 35.75% if it's not repaid within nine months of the year end.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Rates and thresholds for employers 2026 to 2027 — HMRC · accessed 9 October 2026
2. 2.Tax on dividends — GOV.UK · accessed 9 October 2026
3. 3.Employment Allowance — GOV.UK · accessed 9 October 2026
4. 4.Corporation Tax rates and reliefs — GOV.UK · accessed 9 October 2026
5. 5.National Insurance for company directors — GOV.UK · accessed 9 October 2026
6. 6.Running a limited company: taking money out of a limited company — GOV.UK · accessed 9 October 2026
7. 7.Income Tax rates and Personal Allowances — GOV.UK · accessed 9 October 2026