Last updated: 14 October 2026
What is the most tax-efficient way to pay yourself as a company director in 2026/27?
For most single-director companies, the most tax-efficient mix in 2026/27 is a small salary plus dividends. Pay a salary of £12,570, up to the Personal Allowance, if the company can claim Employment Allowance or the employer NIC is worth paying, and around £5,000 if it can’t. Take the rest as dividends taxed at 10.75%, 35.75% or 39.35%, after the £500 dividend allowance. Pension contributions paid by the company are often the most efficient extraction of all.
Salary options
| Salary | Employee NIC | Employer NIC | When it suits |
| £5,000 | None | None | Sole-director companies without Employment Allowance |
| £12,570 | £0 (the primary threshold is £12,570) | £1,135.50 (15% of £7,570), unless covered by Employment Allowance | Companies that can claim Employment Allowance, or where the corporation tax saving is greater than the NIC cost |
A salary above £6,708 (the 2026/27 lower earnings limit) builds State Pension entitlement. Salary and employer NIC are deductible for corporation tax.
Dividends in 2026/27
| Band | Dividend rate |
| Dividend allowance | £500 at 0% |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Dividends are paid from profits after corporation tax, so the total tax includes 19% to 25% at company level.
Example
A sole director with £80,000 of company profit before salary:
- Salary £12,570, which uses the Personal Allowance
- Employer NIC of £1,135.50 (no Employment Allowance for a sole director)
- Corporation tax on the remaining profit, then dividends up to the higher-rate threshold, taxed at 10.75%
- Any further dividends are taxed at 35.75%
We work out the exact figures for your profits and other income.
Pension contributions
Employer pension contributions are deductible for corporation tax and have no NIC or income tax. The annual allowance is £60,000 (tapered for very high earners). For directors who don’t need all of their income now, this is often the best option.
Other tax-free extractions
- Mileage allowance at 45p a mile for business journeys in your own car
- Trivial benefits of up to £50 each, capped at £300 a year for directors
- An electric company car with a low benefit-in-kind rate; see electric company cars
- Interest on loans you have made to the company
Watch out for
- Dividends paid without enough retained profit are illegal
- An overdrawn director’s loan account can trigger a s455 tax charge
- The High Income Child Benefit Charge applies above £60,000 of income
- Personal Allowance tapering between £100,000 and £125,140
Review your pay each year
The best mix of salary, dividends and pension changes when tax rates, your company’s profit or your personal income change. Review it before the start of each tax year and again before the company’s year-end. Check the effect of the High Income Child Benefit Charge, student loan repayments and Personal Allowance tapering. Record dividends with board minutes and vouchers, and keep the director’s loan account in credit.
Frequently asked questions
Is it still worth being a limited company?
Usually, once profits pass £30,000 to £50,000, but the gap has narrowed. We compare both structures.
Should my spouse be a shareholder?
Possibly, if they are genuinely involved. The settlements rules apply, so take advice.
How often can I pay dividends?
Whenever there are distributable profits and you have board minutes.
Do I need a tax return?
Yes, if your dividends are over the allowance or you have other untaxed income.
Related: PAYE and payroll setup.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with planning your director pay. See our limited company accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
