Director salary vs dividends: the best split for 2026/27

The short answer: for 2026/27, most company directors are best off with a salary of £12,570 and the rest as dividends. With £60,000 of profit, that leaves about £46,091 in your pocket against £44,111 with no salary at all. If your company can claim the Employment Allowance, £12,570 is even better.

What you keep with each salary

Profit here is before your salary. All figures are after Corporation Tax, NI, income tax and dividend tax, with no other income.

The "no salary" column pays everything as dividends after Corporation Tax. Taking most of it as salary is worse again, because of employer and employee NI on top of income tax.

Why £12,570 usually beats £5,000

Salary between £5,000 and £12,570 has no income tax or employee NI, but the company pays 15% employer NI on it. That sounds like a loss, but salary and employer NI both cut the company's profit, saving Corporation Tax at 19% to 25%. The extra salary also uses up your personal allowance, so less of your dividends fall in the taxed bands. Overall, the higher salary wins by a little, more so as profits rise.

If your company has the Employment Allowance, the employer NI disappears and £12,570 wins clearly. Sole directors with no other staff cannot claim it.

Watch the £50,270 line

Dividend tax jumps from 10.75% to 35.75% once your total income goes over £50,270. Many directors take dividends up to that line and leave the rest in the company for later years. Other lines to watch:

• £60,000: the High Income Child Benefit Charge starts if you claim Child Benefit. See how the charge works.
• £100,000: your personal allowance starts to go, creating an effective 60% rate. See the 60% tax trap.
• £50,000 profit: above this, Corporation Tax rises from 19% towards 25%.

Pension contributions from the company

Employer pension contributions are often the most tax-efficient way to take money out. They cut Corporation Tax and have no NI or income tax going in. You cannot touch the money until at least 55 (57 from 2028), but for profits you do not need now, it beats both salary and dividends.

Rules that trip directors up

• Dividends need profits. You can only pay them from retained profits after tax. Paying more creates an illegal dividend you may have to repay.
• Paperwork. Each dividend needs board minutes and a voucher, even in a one-person company.
• Self Assessment. Dividend tax is paid through your tax return, often with payments on account.
• IR35. If you contract through your company and the work falls inside IR35, this split does not apply to that income.
• Mortgages. A low salary can make borrowing harder. Lenders often look at salary plus dividends, or your share of company profit, over two years.

£5,000, £6,708 or £12,570?

There are three common salary levels. £6,708 is the lower earnings limit: enough to get a qualifying year for your State Pension. All figures below are for £60,000 of profit, a sole director with no Employment Allowance.

£5,000 does not give you a State Pension qualifying year, which can cost far more over a lifetime than the few hundred pounds it saves. £12,570 gives the qualifying year and the most money now.

Full breakdown at £60,000 profit

This assumes you take all the profit out. Leaving some in the company delays the dividend tax until you take it, which can help if you expect a lower-income year later.

If you also have a job or other income

If a job already uses your personal allowance, a £12,570 salary from your company is taxed at 20% or more, and employee NI may apply. Many directors in this position take a salary of £5,000 or nothing, and take dividends instead. Remember that dividends sit on top of your other income, so more of them may be taxed at 35.75%.

Two directors or shareholders

If you and a partner both work in the business and own shares, each of you can take a £12,570 salary and use your own basic-rate band for dividends. With two people on the payroll, the company can usually claim the Employment Allowance, which removes the employer NI. The shares must be real, with full rights, and the salary must be reasonable for the work done. Simply moving income to a spouse who does not work in the business can fall foul of the settlements rules.

Payroll, paperwork and deadlines

• Payroll: any salary must go through PAYE with a Full Payment Submission each payday, even if no tax is due.
• Director's NI: worked out on an annual basis, so it is not caught out by uneven monthly pay.
• Dividend tax: paid through Self Assessment by 31 January after the tax year. If dividends are £10,000 or less, HMRC can collect it through your tax code.
• Company accounts: dividends must be backed by profits in the accounts, or they may have to be repaid.

Worked example: pension contributions instead of dividends

Say your company has £60,000 of profit and pays £10,000 into your pension as an employer contribution. Profit between £50,000 and £250,000 is effectively taxed at 26.5% under marginal relief, so the contribution saves about £2,650 in Corporation Tax. No income tax or NI is due on the way in. Taking the same money as a dividend would mean Corporation Tax first, then dividend tax on what is left. For money you will not need until later, the pension route usually leaves far more of it working for you.

When to pay dividends

You can pay dividends at any time once the company has the profits, often monthly or quarterly to match your bills. Many directors spread them so their total income stays below £50,270 each tax year. If a year is unusually good, leaving profit in the company and paying it out in a leaner year can keep more of it in the basic-rate band.

This is general information, not tax advice. Figures use 2026/27 rates for England, Wales and Northern Ireland. Speak to an accountant before setting your pay.