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How to pay yourself from a limited company: salary vs dividends

Limited companies · Directors

How to pay yourself from a limited company: salary vs dividends

As a company director, you choose how to pay yourself. Most directors take a mix of a small salary and dividends, but the best mix depends on your circumstances.

AIBy Ali ImranUpdated 11 November 20263 min read
Director planning salary and dividends
In 30 seconds
  • Salary is a business expense that saves Corporation Tax
  • Dividends come from profit after Corporation Tax
  • A £12,570 salary is often best for a sole director
  • You can only pay dividends from available profits

Dividend tax rates rose in April 2026 and employer National Insurance is now 15%, so last year’s plan may no longer be the cheapest.

This guide explains how salary and dividends are taxed, a typical mix and the rules you need to follow.

How salary is taxed

Salary goes through payroll. It’s deductible for Corporation Tax, but you pay Income Tax and employee National Insurance on it, and the company pays 15% employer National Insurance above £5,000 a year. If your company has more than one employee on payroll, it may claim the £10,500 Employment Allowance against employer National Insurance. Single-director companies can’t.

How dividends are taxed

Dividends are paid from profits after Corporation Tax. There’s no National Insurance on them. The first £500 is tax-free, then rates are 10.75% basic, 35.75% higher and 39.35% additional for 2026/27.

Finding the best mix

For a sole director with no other income, two salary levels are common.

Company profit £50,000£5,000 salary£12,570 salary
Employer NI£0£1,136
Corporation Tax£8,550£6,896
Dividend tax£3,051£3,107
You keep£38,399£38,862

The £12,570 salary wins by about £460 here, because the Corporation Tax saved is more than the employer National Insurance paid. A salary above the lower earnings limit also protects your State Pension record.

Dividend tax calculator

Check your dividend tax at 2026/27 rates.

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For example

If you also earn a salary from another job, your personal allowance is already used. Then a company salary attracts tax straight away, and taking mainly dividends is often better. That’s why there’s no one-size-fits-all answer.

Rules for paying dividends

  • You can only pay dividends out of retained profits, after Corporation Tax
  • Hold a board meeting and keep minutes
  • Issue a dividend voucher for each payment
  • Pay shareholders in proportion to their shares, unless you have different share classes
  • Over £10,000 of dividends means you need a Self Assessment return

Taking money without enough profit can create a director’s loan, which has its own tax rules. See HMRC guidance on tax on dividends.

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Don’t forget pension contributions

Company pension contributions are usually deductible for Corporation Tax and free of Income Tax and National Insurance for you, within the annual allowance. For directors with profits to spare, they’re often the most tax-efficient way to extract money. Our business tax planning and limited company accountants can set up the right mix.

What should I do next?

Check your other income

It changes the best salary level.

Confirm available profits

Before declaring any dividend.

Paper it properly

Minutes and vouchers for every dividend.

Review it each April

Rates change. Ask us to model it.

Frequently Asked Questions

What is the best salary for a director in 2026/27?

For a sole director with no other income, £12,570 is often best. With other income or the Employment Allowance available, the answer can differ.

How often can I take dividends?

As often as you like, as long as there are enough retained profits and each one is properly declared and recorded.

Do I pay National Insurance on dividends?

No. Dividends are free of National Insurance, which is one reason directors use them.

What happens if I take dividends without enough profit?

They may be unlawful dividends, and the money could be treated as a director’s loan with its own tax charges.

Can Wingate run my payroll and dividends?

Yes. We run director payroll, prepare dividend paperwork and file your personal and company returns.

Need help with this? Wingate Accountants offers fixed-fee online accountancy support across the UK. Call 0161 531 4179 or request a quote at wingateaccountants.co.uk.

AI

About the Author

Ali Imran
I’m Ali Imran, an accountant at Wingate Accountants. I help sole traders, landlords and directors get their returns filed early and accurately, without the last-minute panic.

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