Salary vs dividends: how to pay yourself from your limited company in 2026/27

For most directors, a small salary plus dividends is still more tax-efficient than taking everything as salary. The typical 2026/27 setup is a salary of either £5,000 (the employer NI secondary threshold) or £12,570 (the personal allowance), with the rest drawn as dividends within the basic rate band. Dividends now carry 10.75% basic / 35.75% higher / 39.35% additional rate tax above the £500 dividend allowance — two points higher than 2025/26 for the basic and higher bands. The right level for your company depends on whether you qualify for the £10,500 Employment Allowance, your corporation tax rate, and any other income.

The basic dividend rate rose from 8.75% to 10.75% and the higher dividend rate rose from 33.75% to 35.75%. The additional rate (39.35%) and the £500 dividend allowance are unchanged. The 2-point rise was announced at the Autumn 2025 Budget and applies to dividends paid on or after 6 April 2026. Any director who set their salary/dividend split under the old rates should review it — the optimal salary level, the band ceiling, and the pension-vs-dividend trade-off have all shifted.

Yes, if the shareholding is genuine. A spouse or civil partner who owns shares in the company can receive dividends, which uses their own personal allowance, £500 dividend allowance and basic rate band. For a husband-and-wife company, optimising both directors can roughly double the combined saving. The shareholding must be real — HMRC scrutinises arrangements that are not, and the settlements legislation can apply where shares are gifted with strings attached.

Dividends are a distribution of profit, not a business expense. The company first pays corporation tax (19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief in between giving an effective ~26.5% on profit in that band). What is left is retained profit, and only that can be distributed as a dividend. That is why the headline 10.75% dividend rate is not the full picture — the real comparison is the combined company-plus-personal tax, not the dividend rate alone.

£50,270 is the top of the basic rate band. Dividends taken above that point jump from 10.75% to 35.75% — a 25-point step. For many directors, the planning aim is to stay at or below this ceiling: with a £12,570 salary, that leaves roughly £37,700 of dividends in the basic rate band. Going higher is not wrong if you need the income; it just costs more, and is often where pension contributions become the more efficient route.

Above £100,000 of adjusted net income, your personal allowance tapers — you lose £1 of allowance for every £2 of income, until it is fully gone at £125,140. That taper, layered on top of the 40% higher rate and the 35.75% dividend rate, creates an effective marginal rate of around 60% on income in the £100,000–£125,140 band. Directors approaching £100,000 often use pension contributions to bring income back below the threshold and reclaim the allowance.

Employer National Insurance is 15% on salary above the £5,000 secondary threshold. A salary of £12,570 means £7,570 above that threshold, triggering about £1,135.50 of employer NI. Against that, the salary is a deductible business expense, so it saves corporation tax at 19%–26.5%. If your company qualifies for the £10,500 Employment Allowance, that £1,135.50 is effectively wiped out — making £12,570 clearly more efficient than £5,000. Most single-director companies cannot claim Employment Allowance, which often makes £5,000 the right number for them.

Often, yes — and more so after April 2026. An employer pension contribution is a deductible business expense (reducing corporation tax), carries no employer NI, no employee NI, no income tax now, and no dividend tax. The trade-off is access: the money is locked into a pension until age 55 (rising to 57 from 2028). For profit you do not need as current income, an employer contribution typically beats taking the same amount as a dividend, especially once you are into the higher rate band. The annual allowance is £60,000, tapered from adjusted income of £260,000.

Yes, if your total dividends exceed the £500 dividend allowance. Dividends are reported on the SA100 main return (or in your HMRC personal tax account) and tax is paid through the normal Self Assessment cycle — balancing payment on 31 January and payments on account on 31 January and 31 July. Keep dividend vouchers and board minutes for each dividend declared; they evidence the dividend was a genuine distribution rather than a disguised salary or director's loan.

At least once a year, and whenever something material changes. Tax rates and thresholds change every April, and the April 2026 dividend rise is precisely the kind of change that flips the optimal answer for some directors. Other triggers: profits crossing the £50,000 small-profits limit or the £250,000 main-rate threshold, new income (rental, employment, side trade), starting or stopping pension contributions, hiring a first employee (which often unlocks Employment Allowance), or a spouse joining the cap table.