How Much Should You Pay Yourself as a Company Director? A Tax Guide

Most company directors pay themselves a low salary topped up with dividends, because this combination is more tax-efficient than taking all of their income as salary. In 2026/27, the tax-efficient approach is usually a salary of either £12,570, to use the full personal allowance, or £6,708, the level that secures a qualifying year for the state pension, with the rest of your income taken as dividends. The right director salary dividend strategy in 2026 depends on whether your company can claim the Employment Allowance and how much you need to draw overall. Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice, helps directors set pay at the most efficient level. This guide explains how to decide how much to pay yourself, with worked figures for 2026/27.

Key Takeaways

• A tax-efficient director salary in 2026/27 is usually £12,570, using the full personal allowance, or £6,708, the Lower Earnings Limit that secures a qualifying year for the state pension.
• Dividends in 2026/27 are taxed at 10.75% at the ordinary rate, 35.75% at the upper rate, and 39.35% at the additional rate, after a £500 dividend allowance.
• The first £12,570 of income is covered by the personal allowance, so a salary at that level carries no income tax.
• Salary is deductible against Corporation Tax, saving the company 19% or 25%, while dividends are paid from post-tax profit and are not deductible.
• A salary of £6,708 sits above the £5,000 secondary threshold, so a single-director company that cannot claim the Employment Allowance pays employer National Insurance of £256.20 on it, against £1,135.50 on a £12,570 salary.
• Dividends can only be paid from retained profit after Corporation Tax, so a company with no distributable profit cannot lawfully pay them.

Why Do Most Directors Take a Low Salary and Dividends?

Most directors take a low salary and dividends because dividends are taxed at lower rates than salary and are not subject to National Insurance, making the combination the optimal salary dividend limited company structure for extracting profit. A salary is deductible against Corporation Tax, while a small salary plus dividends keeps the overall tax and National Insurance cost down.

Salary is treated as employment income, so it can attract employee and employer National Insurance on top of income tax. Dividends carry no National Insurance and are taxed at lower rates, but they are paid from profit after Corporation Tax. Balancing the two is the heart of any director pay tax efficient plan: enough salary to use allowances and protect state pension entitlement, with dividends taking the strain above that.

For a complete overview of how the two interact, see our guide to director salary and dividend strategy.

What Is the Most Tax-Efficient Salary for a Director in 2026/27?

The most tax-efficient salary for a director in 2026/27 is normally either £12,570, which uses the full personal allowance, or £6,708, the Lower Earnings Limit that protects a qualifying year for the state pension, with the choice depending on your company's Employment Allowance position. Both levels keep income tax to nil on the salary itself.

A salary of £12,570 uses the entire personal allowance, so none of it is taxed, and it gives the largest Corporation Tax deduction of the two. For a company that can claim the Employment Allowance, typically one with more than a single director on the payroll, this level usually wins because the employer National Insurance on the small excess is covered.

A salary of £6,708 sits at the Lower Earnings Limit, the lowest level at which the year still counts towards your state pension. It carries no income tax and no employee National Insurance, but it is above the £5,000 secondary threshold, so employer National Insurance of £256.20 is due. This level suits a sole director whose company cannot claim the Employment Allowance, because it avoids an employer National Insurance cost while still banking a qualifying year. The trade-off is a smaller Corporation Tax deduction and a slightly higher personal tax bill on the dividends that replace the lost salary.

Profit left in the company after a low salary is most efficiently extracted as a pension contribution, as our guide to company pension contributions for directors shows.

How Are Dividends Taxed for a Director in 2026/27?

Dividends paid to a director in 2026/27 are taxed at 10.75% at the ordinary rate, 35.75% at the upper rate, and 39.35% at the additional rate, after a tax-free dividend allowance of £500. These rates rose from 6 April 2026. The ordinary rate was previously 8.75% and the upper rate was previously 33.75%.

Dividends sit on top of your other income, so the rate depends on which band the dividend falls into once salary is added. A director drawing a £12,570 salary has their whole personal allowance used by salary, so dividends are taxed from the first £500 allowance upward, at 10.75% within the basic-rate band and 35.75% once total income passes £50,270.

Dividends can only be paid from retained profit after Corporation Tax, and the company must have enough distributable reserves, otherwise the payment is unlawful. Keeping board minutes and dividend vouchers for each payment is part of doing this correctly.

Worked Example: How Much Tax on a £50,270 Director Income?

A director taking a £12,570 salary and £37,700 of dividends, a total of £50,270 in 2026/27, pays no income tax on the salary and £3,999 of dividend tax, illustrating how the optimal salary dividend limited company split keeps the personal bill low. The salary is covered by the personal allowance and the dividends are taxed mostly at the ordinary rate.

The £37,700 of dividends is reduced by the £500 dividend allowance, leaving £37,200 taxable. As total income stays within the basic-rate band up to £50,270, the whole amount is taxed at the ordinary rate of 10.75%, giving £3,999 of dividend tax. The director keeps £46,271 of the £50,270 drawn.

The £12,570 salary also reduces the company's Corporation Tax bill, saving £2,388 at the 19% small profits rate or £3,143 at 25%. Taking the same £50,270 entirely as salary would instead trigger income tax and National Insurance at far higher combined rates, which is why the director pay tax efficient route uses a small salary and dividends.

Frequently Asked Questions

How much should I pay myself as a limited company director in 2026/27?

Most directors pay themselves a salary of either £12,570, to use the full personal allowance, or £6,708, the Lower Earnings Limit that protects a state pension qualifying year, then top up with dividends. The £12,570 level usually suits companies that can claim the Employment Allowance, while £6,708 suits single-director companies that cannot.

Is it better to take salary or dividends from my company?

A combination of a small salary and dividends is usually more tax-efficient than salary alone, because dividends carry no National Insurance and are taxed at lower rates of 10.75%, 35.75%, and 39.35% in 2026/27. Salary is deductible against Corporation Tax, so a low salary uses allowances while dividends extract the remaining profit efficiently.

Why is the director salary often set at £12,570?

A salary of £12,570 matches the personal allowance, so none of it is subject to income tax, and it gives the largest Corporation Tax deduction among the common salary levels. It works best for companies that can claim the Employment Allowance to cover the employer National Insurance due on the amount above the secondary threshold.

Do I pay National Insurance on dividends?

You do not pay National Insurance on dividends. Dividends are taxed only under the dividend tax rates, which in 2026/27 are 10.75% at the ordinary rate, 35.75% at the upper rate, and 39.35% at the additional rate, after a £500 dividend allowance. This absence of National Insurance is a key reason directors favour dividends over additional salary.

Can I pay dividends if my company has not made a profit?

You cannot pay dividends if your company has no distributable profit. Dividends must come from retained profit after Corporation Tax, so a company with insufficient reserves cannot lawfully pay them. Paying a dividend without distributable profit creates an unlawful distribution, which HMRC may treat as a director's loan or additional salary instead.

How Blue Tick Can Help

Blue Tick Accountants advises company directors on setting the most tax-efficient salary and dividend split for their circumstances, taking account of the Employment Allowance, state pension entitlement, and how much income you need to draw. By modelling your director salary dividend strategy in 2026/27 against the current rates, Blue Tick Accountants helps you extract profit at the lowest overall tax cost while keeping every payment compliant. Head to our website and book a meeting now.

Conclusion

Deciding how much to pay yourself as a director comes down to a small, allowance-using salary topped up with dividends, with the salary set at £12,570 or £6,708 depending on your Employment Allowance position. The dividend rate rises of April 2026 make getting the split right more valuable than ever. Review your pay at the start of each tax year and take advice so your salary, dividends, and Corporation Tax all work together rather than against each other.

About the Author

This guide was written by Leon, founder of Blue Tick Accountants, a Guildford-based UK tax advisory and accountancy practice that helps limited company owners, landlords and the self-employed across the UK extract profit tax-efficiently. It was last reviewed for the 2026/27 tax year.

This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are subject to change and their application will depend on your individual circumstances. You should always seek advice from a qualified professional before taking action. Blue Tick Accountants accepts no liability for decisions made on the basis of this content.

Related reading: Why Directors Should Take a Small Salary, Even If They Don't Need To.

Related reading: The Dividend Allowance in 2026: How Much Can You Take Tax-Free?.