Most directors pay themselves from a limited company with a mix of a small salary and dividends. The salary runs through payroll and is a cost to the company. Dividends come out of profit after Corporation Tax and are taxed at lower rates than wages. Which mix is best depends on your profit, your other income and whether anyone else is on the payroll.
This guide explains how to pay yourself from a limited company in the 2026/27 tax year. It covers each option, the tax on it, the paperwork it needs, and two worked examples. Every rate below was checked against GOV.UK guidance by House Of Accounts.
Your options at a glance
| Option | How it is taxed | What it needs |
|---|---|---|
| Salary | Income Tax and employee National Insurance (NI) for you; employer NI for the company. Salary is a business cost. | The company registered as an employer, with tax and NI taken from each payment |
| Dividends | No tax for the company on the payment itself; you may pay dividend tax above your allowances | Enough available profit, a directors' meeting, minutes and a dividend voucher |
| Expenses and benefits | Depends on the item | The company registered as an employer |
| Director's loan | Detailed tax rules apply | Records of every loan |
| Employer pension contributions | Separate rules; see below | A pension scheme |
Most owner-managed companies use the first two together. The rest of this guide explains why.
Salary: what level and why?
A director's salary is usually set close to an NI threshold, because that is where the tax cost changes. These are the 2026/27 thresholds that matter for a director's salary, from GOV.UK's rates and thresholds for employers:
| Threshold (2026/27) | Annual | What happens above it |
|---|---|---|
| Secondary Threshold | £5,000 | The company pays employer NI at 15% |
| Primary Threshold | £12,570 | You pay employee NI at 8% (up to £50,270) |
| Upper Earnings Limit | £50,270 | Employee NI drops to 2% |
| Personal Allowance | £12,570 | Income Tax starts at 20% (England) |
So a salary of £12,570 carries no Income Tax and no employee NI for you, provided you have no other income using your Personal Allowance. The company pays employer NI of 15% on the slice above £5,000. On £12,570 that is (£12,570 − £5,000) × 15% = £1,135.50.
A salary of £5,000 avoids employer NI altogether. But it uses less of your Personal Allowance, so more of your dividends become taxable. Salary and employer NI also reduce the company's taxable profit, while dividends do not. Our worked example below shows which level came out ahead at £30,000 profit.
What about Employment Allowance?
Employment Allowance lets eligible employers reduce their employer NI bill. For 2026/27 it is £10,500. Not every company qualifies. Eligibility depends on HMRC's rules, which we check case by case, so do not assume your company can claim. Our examples assume it cannot.
Dividends: tax and the rules
A dividend is a payment a company can make to its shareholders if it has made a profit. The company does not pay tax on the dividend payment itself. It has already paid Corporation Tax on the profit the dividend comes from.
For you, the first £500 of dividends each year is covered by the dividend allowance. Above that, the 2026/27 rates on GOV.UK's tax on dividends page are:
| Your tax band | Dividend tax rate 2026/27 |
|---|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Any unused Personal Allowance covers dividends first, before the £500 allowance. GOV.UK gives this example: someone with £29,570 of wages and £3,000 of dividends pays no tax on £500 of dividends and 10.75% on the other £2,500. That is £268.75.
If your dividends are more than your unused Personal Allowance plus the dividend allowance, you need to report them to HMRC.
The profit rule
Your company must not pay out more in dividends than its available profits from current and previous financial years. A dividend is not a way to take money the company has not earned. Before you declare one, check the latest figures, including the Corporation Tax the company will owe on this year's profit.
Salary plus dividends: worked examples for 2026/27
These are our own calculations from the GOV.UK rates above. They assume: one director who owns all the shares, England tax bands, no other income, no Employment Allowance, profit before paying the director equal to taxable profit, and all profit left after Corporation Tax paid out as dividends. Figures are rounded to the nearest penny. Corporation Tax is 19% because taxable profit stays at or below £50,000 in each case.
Take-home here means what reaches you after every tax in the chain. If you want the wider picture, read our guide to what take-home pay means.
| Line | £30,000 profit, £12,570 salary | £30,000 profit, £5,000 salary | £60,000 profit, £12,570 salary |
|---|---|---|---|
| Profit before paying the director | £30,000.00 | £30,000.00 | £60,000.00 |
| Salary | £12,570.00 | £5,000.00 | £12,570.00 |
| Employer NI: (salary − £5,000) × 15% | £1,135.50 | £0.00 | £1,135.50 |
| Taxable profit: profit − salary − employer NI | £16,294.50 | £25,000.00 | £46,294.50 |
| Corporation Tax: taxable profit × 19% | £3,095.96 | £4,750.00 | £8,795.96 |
| Dividend paid: taxable profit − Corporation Tax | £13,198.54 | £20,250.00 | £37,498.54 |
| Dividends covered by unused Personal Allowance | £0.00 | £7,570.00 | £0.00 |
| Dividends covered by the £500 allowance | £500.00 | £500.00 | £500.00 |
| Dividend tax: remaining dividends × 10.75% | £1,365.09 | £1,309.35 | £3,977.34 |
| Income Tax and employee NI on salary | £0.00 | £0.00 | £0.00 |
| Take-home: salary + dividend − dividend tax | £24,403.45 | £23,940.65 | £46,091.20 |
| Total tax: employer NI + Corporation Tax + dividend tax | £5,596.55 | £6,059.35 | £13,908.80 |
What the numbers show. At £30,000 profit, the £12,570 salary leaves you £462.80 better off than the £5,000 salary, even after £1,135.50 of employer NI. The extra salary and NI cut the company's Corporation Tax, and the salary arrives tax-free.
At £60,000 profit, total income is £12,570 + £37,498.54 = £50,068.54. That is just under £50,270, the point where the basic rate band ends for someone with the standard Personal Allowance. So all the dividends are taxed at 10.75%. Above that point, dividends are taxed at 35.75%.
We planned a third example at £100,000 profit. At that level taxable profit sits between £50,000 and £250,000, where Marginal Relief applies. GOV.UK confirms the £50,000 and £250,000 limits, but the guidance we checked for this article did not set out the Marginal Relief calculation. Rather than publish figures we could not check against an official source, we left it out. If your profit is in that range, ask us to run your own numbers.
Employer pension contributions
Some directors have the company pay into a pension instead of taking all their profit as dividends. Money paid in this way is not available to spend now, so it suits directors who would save the money anyway. Pension contributions come with their own tax rules and limits, and they interact with the salary and dividend mix. We have not modelled them here. If you are considering larger contributions, take personal advice first, and check how it affects your dividends for the year.
Expenses and the director's loan account
Expenses and benefits. If the company pays you a salary, expenses or benefits, it must be registered as an employer. Reimbursing genuine business costs is not a way to pay yourself. It returns money you have spent for the company. Keep the receipts.
Director's loan. If you take out more than you have put in, and it is not salary or a dividend, it is a director's loan. The company must keep records of these loans, and detailed tax rules apply to how they are handled. We will cover those rules in a separate guide. For now, treat an overdrawn loan account as something to clear or plan for, not a regular way to pay yourself.
The paperwork behind each route
Each route has its own records. Missing paperwork is the quickest way to turn a sensible plan into a problem.
| Route | What you need to do |
|---|---|
| Salary | Register the company as an employer. Take Income Tax and NI from each salary payment and pay them to HMRC, along with the company's employer NI. |
| Dividends | Check available profits. Hold a directors' meeting to declare the dividend. Keep minutes, even if you are the only director. |
| Dividend voucher | Show the date, the company name, the names of the shareholders being paid and the dividend amount. Give a copy to each recipient and keep a copy for the company's records. |
| Director's loan | Keep a record of every loan to or from you. |
| Your own tax | Report dividends to HMRC if they are more than your unused Personal Allowance plus the £500 dividend allowance. |
We check this paperwork as part of the year-end accounts, so gaps are found before they reach HMRC.
Which mix suits you?
The right mix depends on your situation. This table shows where to start and what to check.
| Your situation | Where to start | What to check |
|---|---|---|
| Sole director, no other income, profit up to about £60,000 | A £12,570 salary plus dividends, as in the examples above | Whether the company can claim Employment Allowance, and available profits before each dividend |
| Spouse or partner also holds shares | Each shareholder has their own Personal Allowance and £500 dividend allowance | Take advice before changing who owns shares. The tax rules here are detailed. |
| Income near £50,270 | Watch the total of salary and dividends | Dividends above the basic rate band are taxed at 35.75%, not 10.75% |
| Scottish taxpayer | Our examples use England Income Tax bands | Ask us to rerun the figures with your own rates |
| Other employees on the payroll | Employment Allowance may reduce employer NI, up to £10,500 | The eligibility rules for your company |
Your mix should be reviewed every tax year, because rates and thresholds change. We review it as part of our tax planning for limited companies. Take personal advice before paying a large dividend, before the company's year-end, or if you have rental, savings or employment income on top.
What we cannot do
We prepare the figures and the paperwork, and explain the trade-offs. We do not give regulated pension or investment advice. If a pension contribution is part of your plan, we will work alongside your financial adviser.
Frequently asked questions
What is the most tax-efficient salary for a director in 2026/27?
It depends on your company. In our worked example, with £30,000 profit and no Employment Allowance, a £12,570 salary left the director £462.80 better off than a £5,000 salary. Other income, other employees or higher profits can change the answer, so model your own figures before choosing.
How much dividend can I take tax-free?
The dividend allowance is £500 a year. Any unused Personal Allowance also covers dividends. If you take a £12,570 salary, your Personal Allowance is used up, so only £500 of dividends is tax-free. With a £5,000 salary, £7,570 of Personal Allowance is left for dividends, plus the £500 allowance.
Can I pay myself dividends if the company made a loss?
Possibly. A company must not pay out more in dividends than its available profits from current and previous financial years. If profits kept from earlier years are still enough after this year's loss, a dividend may be possible. If not, it is not. Check the figures before declaring any dividend.
Do I need to run payroll if I only pay myself?
Yes, if you pay yourself a salary. The company must register as an employer and take Income Tax and National Insurance from salary payments. The registration rule applies whatever the salary level. Payroll is for salary, expenses and benefits; dividends are declared at a directors' meeting and recorded with a voucher instead.
Does my company pay tax on the dividends it pays me?
No. GOV.UK confirms the company does not need to pay tax on dividend payments. But dividends come from profit that has already had Corporation Tax taken off it, at 19% where taxable profit is £50,000 or less. You may then pay dividend tax above your allowances.
Get your 2026/27 mix worked out
Send us your expected profit for 2026/27 and any other income, and we will model a salary and dividend mix for your company. book a free consultation to get started. Fees are quoted after a short scope call, with all costs listed upfront.
This article was researched and drafted with AI assistance, then fact-checked against GOV.UK and HMRC guidance and edited by the House Of Accounts team.