Last updated: 16 October 2026
Why profit extraction needs planning
How you take money out of your limited company affects how much tax you, and the company, pay. Rates have changed a lot in recent years. The dividend allowance is now £500, the additional rate threshold is £125,140 and from 6 April 2026 the ordinary and upper dividend rates rose by 2 percentage points.
Key rates for 2026/27
| Item | 2026/27 |
| Personal allowance | £12,570 (tapered away above £100,000) |
| Dividend allowance | £500 |
| Dividend tax rates | 10.75% basic, 35.75% higher, 39.35% additional |
| Employer NIC | 15% above £5,000 a year |
| Employment allowance | £10,500, not available to single-director companies with no other employees |
| Corporation tax | 19% up to £50,000, 25% over £250,000, marginal relief in between |
Choosing a salary
Many directors take a salary of £12,570, which uses the personal allowance and is deductible for the company. If the company can claim employment allowance, the employer NIC is covered. If it cannot, a salary around £5,000 to £6,500 may avoid employer NIC while still securing a qualifying year for the state pension, as long as it is above the lower earnings limit.
Taking dividends
Dividends are paid from post-tax profits and carry no NIC. Make sure the company has enough distributable reserves, hold a board meeting and issue dividend vouchers. The 2026 rate rise means it is worth thinking about the timing of large dividends.
Worked example
Owen’s company makes £70,000 profit before his pay. He takes a £12,570 salary (covered by employment allowance as he has staff) and the rest as dividends after corporation tax. Corporation tax on £57,430 is about £11,470 after marginal relief. That leaves about £45,960 for dividends. The first £500 is tax free, and after his salary uses the personal allowance, about £37,200 falls in the basic rate band at 10.75% and the rest at 35.75%. His total income tax is roughly £6,950.
Other ways to extract profits
- Employer pension contributions: deductible for the company and free of tax and NIC for you.
- Rent: if you own property the company uses, rent is deductible and free of NIC.
- Tax-free benefits: trivial benefits up to £50 (capped at £300 a year for directors), mobile phones and electric company cars with low benefit in kind.
- Interest on loans you make to the company: deductible for the company and covered by the £1,000 or £500 savings allowance or starting rate for savings.
Family shareholders
Spreading shares among family members can use more personal allowances and basic rate bands, but the settlements rules can apply to gifts of shares to a spouse unless they are ordinary shares with full rights. Gifts to minor children do not work for tax.
Frequently asked questions
Can I take dividends monthly?
Yes, as long as there are enough reserves each time.
Should I keep profits in the company?
Retained profits are taxed at corporation tax rates only and can be extracted later.
What is an illegal dividend?
One paid without sufficient reserves. It may have to be repaid.
Do I need to file a tax return?
Usually yes, if you receive dividends over £10,000 or have untaxed income.
Related: salary or dividends, reducing dividend tax and charging your company rent.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with profit extraction planning. 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 16 October 2026. It is not personal advice, so speak to an accountant about your own situation.
