Is it better to take salary or dividends?

For most owner-directors, a mix works best — a modest salary set around the National Insurance thresholds, with the rest taken as dividends. Dividends avoid National Insurance and are taxed at lower rates, but they come out of post-tax profit, so the right balance depends on your wider circumstances.

What are the dividend tax rates for 2026/27?

After a £500 tax-free dividend allowance, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate). Basic and higher rates rose by two percentage points from 2025/26, confirmed at the Autumn 2025 Budget.

Do I pay National Insurance on dividends?

No. Dividends don't attract National Insurance, which is a big part of why they're often more efficient than salary. They are, however, paid from profit that has already had Corporation Tax charged on it.

Can I just pay myself all in dividends?

Only if the company has enough retained post-tax profit, and you should still usually take a small salary to keep a qualifying year for your State Pension. Paying dividends the company can't support creates an overdrawn director's loan with its own tax consequences.

How much tax will I actually pay?

It depends on your total income, the salary/dividend split and any other reliefs. Our salary and dividend calculator gives a quick estimate, and we'll work out the efficient split for your actual situation.

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

If you run your own limited company, one of the first questions worth getting right is how you actually pay yourself. You have two main levers — a salary through the company payroll, and dividends from the company's post-tax profits — and the mix you choose changes how much tax you and the company pay. It's one of the most common things directors ask us about, and one of the easiest to get wrong if you copy what a mate down the pub does.

Salary vs dividends: the basic difference

A salary is paid through PAYE like any employee's. It's a deductible cost for the company (so it reduces the profit that Corporation Tax is charged on), but it attracts Income Tax and National Insurance — both employee's and employer's — once it's above the relevant thresholds.

Dividends are a share of the company's profit after Corporation Tax has been paid. They don't attract National Insurance, and they're taxed at lower headline rates than salary — but they come out of already-taxed profit, and you can only pay them if the company actually has the retained profit to do so.

The rates that matter in 2026/27

For the 2026/27 tax year, the dividend rates went up. The first £500 of dividends is tax-free (the dividend allowance), and above that dividends are taxed at 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% in the additional-rate band — a two-percentage-point rise on basic and higher rates from the year before, confirmed at the Autumn 2025 Budget. Your salary uses up your personal allowance and rate bands first, and dividends stack on top.

On the company side, Corporation Tax is 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief in between. That matters because every pound you take as salary reduces the company's Corporation Tax bill, while every pound of dividend is paid out of profit that has already been taxed.

The common director's approach

For a typical owner-director with no other income, the usual starting point is a modest salary plus dividends. The salary is often set around the National Insurance thresholds — high enough to count as a qualifying year for your State Pension and to be an efficient deductible cost for the company, but low enough to keep personal NI low — with the rest of what you need taken as dividends. Exactly where that salary lands depends on whether the company can claim the Employment Allowance and on your wider circumstances, which is why it's worth getting it set for your situation rather than assuming.

Why "most tax-efficient" isn't the whole story

Tax efficiency is only one factor. Mortgage lenders often look more favourably on salaried income. Pension contributions made by the company can be more efficient than either salary or dividends. If you have student loan repayments, other income, or a fluctuating profit, the maths shifts. And dividends can only be paid from genuine retained profit with proper paperwork — pay them when the profit isn't there and you've actually created an overdrawn director's loan, which is taxed quite differently.

Try the numbers, then get them checked

Our salary and dividend calculator gives you a quick side-by-side of a few common ways to split a given amount, using the current 2026/27 rates — a useful sense-check before a conversation. But the genuinely efficient answer depends on your full picture: other income, pension plans, what the company can afford, and your goals for the year. That's exactly the kind of thing we sort out with limited company clients as part of the service, so you're not guessing with your own tax bill.