If you run your own limited company, how you take money out affects how much tax you pay. The usual approach is a small salary with the rest taken as dividends, but the exact balance depends on your circumstances.
The 2026/27 numbers that matter
- Personal Allowance: £12,570, frozen until April 2031.
- Employer National Insurance: 15% on salary above £5,000 a year.
- Employee National Insurance: 8% on earnings above £12,570.
- Dividend Allowance: £500.
- Dividend tax: 10.75% basic rate, 35.75% higher rate and 39.35% additional rate.
Why a small salary helps
A salary is a business expense, so it reduces Corporation Tax, and it can count towards your State Pension record. Many directors set salary around the National Insurance thresholds. The best level depends on whether your company can claim Employment Allowance — a company where the director is the only employee usually can’t.
How dividends work
Dividends are paid from profits after Corporation Tax. You can only pay them if the company has enough retained profit, and each one should be backed by board minutes and a dividend voucher. They aren’t subject to National Insurance, which is where the saving usually comes from.
Things to plan for
- Personal tax on dividends is paid through Self Assessment, often months later. Put money aside as you go.
- The higher dividend rates from April 2026 mean last year’s plan may no longer be the best one.
- Pension contributions paid by the company can be an efficient alternative for money you don’t need now.
How we help
We work out your salary and dividend mix at the start of each tax year, run the director’s payroll, prepare the dividend paperwork and tell you how much to save for your tax bill.
This article is general guidance based on the rules for the 2026/27 tax year. It isn’t personal advice — talk to us before you act on it.
