What salary should I take as a director?

There is no single right answer, but the mechanics are fixed. A salary of £12,570 uses the full personal allowance, attracts no Income Tax and no employee's National Insurance, sits above the £6,708 Lower Earnings Limit so the year counts towards your State Pension, and is deductible from company profit. On the worked example above it costs £1,135.50 of employer's National Insurance and saves £2,604.05 of Corporation Tax — a net gain of £1,468.55. A salary set at the £5,000 secondary threshold avoids the employer's NI but loses the qualifying year. Which is better depends on your other income and whether you already have 35 qualifying years.

Can I just take money out of the company whenever I need it?

You can move the money, but you still have to say what it was. Every pound leaving the company is salary, a dividend, repayment of something you lent the business, or a director's loan — and each is taxed differently. Drawing cash without deciding which it is means it defaults to a director's loan, sitting on your loan account until it is repaid or formally declared as something else. If you still owe the company nine months and a day after the year end, the company pays an extra Corporation Tax charge on the outstanding balance, refundable only once the loan is cleared. Decide at the time, not at year end.

What happens if I pay a dividend and the profit wasn't there?

It is an unlawful dividend, and cash in the bank is not the test — a company can hold £40,000 while owing £25,000 in VAT and Corporation Tax, leaving very little genuinely distributable. In practice the payment gets reclassified, usually as a director's loan, which brings the additional Corporation Tax charge if it is still outstanding nine months and a day after the year end. HMRC can alternatively treat it as salary, with PAYE and National Insurance applied. Directors can also be required to repay it. The fix is to check accumulated post-tax profit before you transfer, not afterwards.

Do I have to file a Self Assessment return just because I'm a director?

No — being a director does not by itself create a filing obligation, contrary to a belief that circulates widely. What does create one is having income that is not taxed at source, and most director-shareholders have exactly that in the form of dividends. You will also need to file if HMRC has issued you a notice to file, if you have capital gains to report, or if you are liable to the High Income Child Benefit Charge. If HMRC has sent you a notice, you must file even where you owe nothing. Register by 5 October following the end of the tax year concerned.

What actually changed for directors in 2026/27?

The dividend basic and higher rates each rose by two percentage points from April 2026, to 10.75% and 35.75%; the additional rate stayed at 39.35%. The dividend allowance remains £500 and the personal allowance £12,570. Employer's National Insurance is 15% above a £5,000 secondary threshold, and Corporation Tax is unchanged at 19% and 25% with Marginal Relief between £50,000 and £250,000. Separately, the Companies House digital confirmation statement fee moved to £50 from 1 February 2026. On the worked example in this guide, the dividend change alone costs £739.97 for the year on identical profits.

A First-Time Limited Company Director's Guide

A director is legally different from an employee

When you incorporate, the company becomes its own legal entity, separate from you personally. As a director you run it — but you do not own it outright the way a sole trader owns their business. If you hold shares you are also a shareholder, and it is worth keeping those two roles distinct in your head, because they behave differently when it comes to tax and to how money leaves the business.

Directors have statutory duties under company law: acting in the company's best interests, exercising reasonable care and skill, avoiding conflicts of interest, and keeping proper records. None of it is designed to be intimidating. It is simply the framework that comes with the protection of limited liability.

The two hats, and why the distinction matters

Wearing the director's hat, you are paid for work: a salary through PAYE, taxed as employment income, with National Insurance on both sides. Wearing the shareholder's hat, you receive a share of profit the company has already made and paid Corporation Tax on: a dividend, taxed at dividend rates with no National Insurance at all.

Almost every question a new director asks — how much salary, when can I take a dividend, why is my accountant fussing about paperwork — comes back to which hat you are wearing at the time. The two are taxed on entirely different systems, and money that leaves the company under neither heading is a director's loan, which is its own problem.

What the 2026/27 numbers actually are

Here are the figures a director needs in front of them for the 2026/27 tax year:

Personal allowance: £12,570.
Employee's National Insurance: 8% on earnings between £12,570 and £50,270, then 2% above that.
Employer's National Insurance: 15% on everything above the secondary threshold of £5,000 a year.
Lower Earnings Limit: £6,708 a year — the point at which a year counts towards your State Pension record.
Corporation Tax: 19% on profits up to £50,000, 25% on profits above £250,000, with Marginal Relief tapering between the two.
Dividend allowance: £500.
Dividend tax rates: 10.75% basic rate, 35.75% higher rate, 39.35% additional rate. The basic and higher rates each rose by two percentage points from April 2026.

Worked example: £60,000 of profit through a one-person company

Take a sole director who owns all the shares, in a company making £60,000 of profit before any salary, in 2026/27. The figures are illustrative; the rates are the real ones.

Salary of £12,570. That is exactly the personal allowance and the primary threshold, so there is no Income Tax and no employee's National Insurance on it.
Employer's National Insurance: (£12,570 − £5,000) × 15% = £1,135.50. A sole director who is the only employee liable for secondary National Insurance cannot claim the Employment Allowance, so the company pays it.
Profit chargeable to Corporation Tax: £60,000 − £12,570 − £1,135.50 = £46,294.50. That is under £50,000, so the small profits rate of 19% applies: £8,795.96.
Profit available to distribute: £46,294.50 − £8,795.96 = £37,498.54.
Dividend tax: the first £500 is covered by the dividend allowance. The remaining £36,998.54 sits inside the basic rate band, because total income of £50,068.54 is just under the £50,270 higher-rate threshold. At 10.75% that is £3,977.34.

Take-home is £12,570 + £37,498.54 − £3,977.34 = £46,091.20. Total tax across the company and the individual is £13,908.80, or 23.2% of the £60,000 the business made.

Two things fall straight out of that example. First, the salary earns its keep: £12,570 of salary plus £1,135.50 of employer's NI is £13,705.50 of deduction from profit, saving £2,604.05 of Corporation Tax at 19% against £1,135.50 of NI paid — a net gain of £1,468.55 compared with taking no salary at all. Second, this director is £201.46 below the higher-rate threshold. The next pound of dividend is taxed at 35.75%, not 10.75%. That cliff is the single most useful number for a director to know before deciding what to draw in March.

What the April 2026 dividend rise costs you

The basic and higher dividend rates both went up by two percentage points from April 2026. On the example above, £36,998.54 of taxable dividend at 10.75% costs £3,977.34; at the previous 8.75% it would have been £3,237.37. The change costs that director £739.97 for the year, on identical profits and identical drawings.

It is not a reason to restructure on its own. It is a reason to check that your salary and dividend split still makes sense on this year's rates rather than the ones that applied when you first set it, and to run the sum before the tax year ends rather than after.

The £5,000 salary trap

A common shortcut is to set a director's salary at the £5,000 secondary threshold so the company pays no employer's National Insurance at all. It does save the £1,135.50 — but £5,000 is below the Lower Earnings Limit of £6,708, so the year does not count towards your State Pension record. You need 35 qualifying years for a full new State Pension. Saving a four-figure sum today by quietly dropping a qualifying year is a trade most directors would not make if anyone had spelled it out. Ask for it to be spelled out.

Dividends can only come from profit that exists

A dividend can only be paid out of accumulated realised profits after Corporation Tax — not out of turnover, not out of the cash in the bank, and not if paying it would leave the company unable to meet its debts. Cash in the account is not the test. A company can be sitting on £40,000 while owing £25,000 of VAT and Corporation Tax, and only a fraction of that balance is genuinely distributable.

Pay a dividend the profits do not support and it is unlawful. In practice it gets reclassified — usually as a director's loan, which sits on your director's loan account and, if it is still outstanding nine months and a day after the year end, triggers an additional Corporation Tax charge on the company that is only refunded once the loan is cleared. It can also be treated as additional salary, with PAYE and National Insurance on top. Either way it costs more than doing it properly would have.

Dividend vouchers and board minutes

Every dividend needs paperwork behind it: a dividend voucher recording the amount, the date and the shareholder it was paid to, and a board minute recording that the directors formally declared it. This is not box-ticking for its own sake. If HMRC ever queries how money left the company, "we paid ourselves a dividend" with nothing behind it looks a great deal like undocumented income — and it can be reclassified and taxed less favourably.

The habit worth building is doing the voucher and the minute on the day you make the transfer, not reconstructing a year of them the week before your accounts are due. It takes about two minutes each; done retrospectively it takes an afternoon and convinces nobody.

Corporation Tax

The company pays Corporation Tax on its profits, separately from anything you pay personally on salary or dividends. It is charged at 19% up to £50,000 of profit and 25% above £250,000, with Marginal Relief smoothing the step in between — which means the effective rate on profit inside that band is higher than 25%, not lower. Those limits are divided between associated companies, so a second company you control halves them.

Payment is due nine months and one day after your accounting period ends, and the return is due twelve months after it. The payment deadline comes first, which surprises people every year. Because the charge builds through the year on profit you have already spent, the practical answer is to know your running profit as you go rather than discovering the liability with the accounts — which is what management accounts exist for.

The confirmation statement

Once a year every limited company must file a confirmation statement with Companies House — a short filing confirming that the company's core details are still accurate, or updating them if they are not: registered office, directors, people with significant control, share capital and shareholders. It is separate from your annual accounts and has its own deadline.

From 1 February 2026 the digital filing fee is £50. Missing it is more serious than a fee: persistent failure to file can eventually lead to the company being struck off the register, which is a considerably bigger problem than a missed reminder.

Year-end accounts, and what late filing costs

Statutory year-end accounts go to Companies House and form the basis of your Corporation Tax return. They are a compliance requirement rather than a management tool — they tell you what happened, filed some months after your year actually ended, which is far too late to act on.

File them late and Companies House charges an automatic penalty on a fixed scale. For a private company: £150 up to a month late, £375 between one and three months, £750 between three and six months, and £1,500 beyond six months. File late in two successive financial years and the penalty is doubled. None of it is discretionary and appeals rarely succeed.

Your director's calendar

Every payday: a Full Payment Submission to HMRC, on or before the day you pay yourself.
Every dividend: a board minute and a dividend voucher, dated the day of the payment.
Quarterly, if VAT registered: the return and the payment.
Nine months and one day after year end: Corporation Tax payment.
Twelve months after year end: Corporation Tax return.
Nine months after year end: accounts filed at Companies House.
Annually, on your own date: confirmation statement, £50 to file digitally.
31 January: your personal Self Assessment return and payment, where you have dividend income to report.

Three things to check this week

Work out your projected total income for 2026/27 and see how close it lands to £50,270. If a March dividend would cross it, you now know what that pound costs.
Check your salary is at or above £6,708, so the year counts towards your State Pension.
Look at your director's loan account balance and your year end date. If you owe the company money nine months and a day after that date, the charge applies.

Where Buzz fits in

This is precisely what our support for limited company directors is built around: a dedicated accountant, year-end accounts and Corporation Tax returns handled, payroll run properly, dividend vouchers and board minutes kept in order, and company secretarial support for the confirmation statement — under one fixed monthly fee. If you want to go deeper on the salary and dividend question, read how to pay yourself from a limited company, and every deadline for the year is set out on our key tax dates for 2026/27 page.

If you have just incorporated, or the admin is proving harder to stay on top of than you expected, book a free discovery call and we will walk through exactly what needs to be in place.

Rates, allowances and thresholds are those for the 2026/27 tax year and the Corporation Tax financial year beginning 1 April 2026. Figures used in the examples are illustrative. This is general information about tax and company law, not personal advice — where a decision turns on your own circumstances, take advice on those circumstances.

What every first-time limited company director should know