Salary or dividends? Paying yourself as a director in 2026–27

Two ways to take money out

A salary is paid through payroll. It is a cost to the company, so it reduces the profit Corporation Tax is charged on — but it can bring Income Tax and National Insurance with it.

A dividend is paid to shareholders out of profit that has already had Corporation Tax taken from it. It carries no National Insurance, and has its own allowance and tax rates.

The 2026–27 figures

• Personal Allowance: £12,570.
• National Insurance Lower Earnings Limit: £6,708 a year. Earnings from here count towards your State Pension record.
• Primary Threshold (employee National Insurance starts): £12,570. Employees pay 8% up to £50,270 and 2% above.
• Secondary Threshold (employer National Insurance starts): £5,000. Employers pay 15% above it.
• Employment Allowance: up to £10,500 off the employer's bill — but not for a company whose only employee paid above the Secondary Threshold is a single director.
• Dividend Allowance: £500. Dividend tax above it: 10.75% (basic rate), 35.75% (higher rate), 39.35% (additional rate).
• Corporation Tax: 19% on profits up to £50,000, 25% above £250,000, with marginal relief between.

A worked example

Take a company with one director, no other employees and so no Employment Allowance, paying Corporation Tax at 19%. The director has no other income. Compare a salary at the Lower Earnings Limit with a salary at the Personal Allowance.

At £6,708, the company pays £256.20 of employer's National Insurance. At £12,570, it pays £1,135.50. In both cases the director pays no Income Tax or employee's National Insurance on the salary.

The higher salary gives the director £5,862 more. It uses £6,741.30 of the company's profit before tax — the extra salary plus the extra National Insurance. Paying the same £5,862 as a dividend would use £7,237.04: the dividend, plus the 19% Corporation Tax on the profit it comes from. In this example the salary route is cheaper by about £496, and both keep the director inside their Personal Allowance.

Change the assumptions — Employment Allowance, other income, a higher Corporation Tax rate, a student loan, pension contributions — and the answer moves. That is why the figures, not a rule of thumb, should decide.

The rules that keep a dividend legal

A company can only pay dividends out of profits available for the purpose — its accumulated profits after tax, less any losses. Paying more than that is unlawful, and a shareholder who knew may have to pay it back.

Declare each dividend at a directors' meeting and keep minutes, even if you are the only director, and give each shareholder a dividend voucher.

Money taken out that is neither salary nor dividend is a loan from the company. A director's loan still owed nine months and one day after the year end can bring an extra Corporation Tax charge.

Your own tax return

Dividends above the allowance, or a salary not fully taxed through payroll, usually mean a Self Assessment return. It is due online by 31 January after the end of the tax year, along with any tax owed.