Most directors pay themselves in two parts: a modest salary plus dividends. The salary is a deductible business cost and protects your State Pension record; the dividends top up your income and carry no National Insurance, which is what makes the combination more efficient than taking everything as salary. The catch for 2026/27 is that dividend tax rates rose to 10.75% and 35.75% and employer National Insurance now starts at just £5,000 of salary, so the "best" split is tighter than it used to be — and genuinely depends on your numbers. This guide explains how it works, with the current figures, so you understand what your accountant is optimising.
All figures are for 2026/27 and sourced to gov.uk; they change at each Budget. This is general guidance, not personal tax advice — the right split for you depends on your circumstances, so have it confirmed before you set your payroll.
Why salary plus dividends beats salary alone
If you took all your income as salary, it would attract Income Tax, employee National Insurance (8% over £12,570) and employer National Insurance (15% over £5,000) (gov.uk). Dividends are different: they're paid from company profit after Corporation Tax, come with a £500 tax-free allowance, and are then taxed at lower headline rates with no National Insurance at all (gov.uk). That NIC saving is the heart of why directors mix the two.
There are two common salary levels directors use, and which is better depends on whether your company can claim the Employment Allowance (£10,500 of employer NIC relief — but most single-director companies whose only employee is that director are not eligible):
A salary around £5,000 — the employer National Insurance secondary threshold. Below this, the company pays no employer NIC. Useful for a sole director who can't claim the Employment Allowance and wants to avoid that 15% cost.
A salary around £12,570 — your personal allowance and the employee NIC threshold, so you pay no Income Tax or employee NIC on it. The company does pay 15% employer NIC on the slice above £5,000, but the salary is deductible against Corporation Tax (19%), which softens the cost — and it's often the better answer when the Employment Allowance is available (for example, a company with a second employee).
Either way, aim to pay at least enough to count as a qualifying year for your State Pension. Because the maths swings on the Employment Allowance and your wider income, this is exactly the figure an accountant pins down for you.
Step 2: top up with dividends
Once your salary is set, you draw further income as dividends — but only from actual retained profit after Corporation Tax, properly recorded with a dividend voucher and board minute. You can't pay dividends from money the company hasn't made as profit; doing so creates an illegal dividend and tax problems.
Your first £500 of dividends is tax-free. After that, dividends are taxed at the rates above, depending on which band they fall into once stacked on top of your salary. Keep an eye on the £50,270 higher-rate threshold — dividends that push you over it are taxed at 35.75% rather than 10.75%, a big step up.
Take a director who pays themselves a £12,570 salary and £40,000 in dividends in 2026/27 (rUK):
The salary uses the personal allowance, so no Income Tax on it; the company pays employer NIC at 15% on the part above £5,000.
The dividends: the first £500 is tax-free. The salary has used the personal allowance, so dividends fill the basic-rate band up to £50,270 — that slice is taxed at 10.75% — and any dividends above £50,270 are taxed at 35.75%.
The exact take-home depends on the precise split and whether the Employment Allowance applies, which is why two directors on the same total can end up with different tax bills. (Illustrative, 2026/27 rUK rates — your figures will differ.)
What changed for 2026/27 — and why it matters
Two shifts have made the split less automatic:
Dividend rates rose 2 percentage points (ordinary 8.75% → 10.75%, upper 33.75% → 35.75%) from 6 April 2026.
Employer NIC has a low £5,000 secondary threshold and a 15% rate, so salaries above £5,000 cost the company more than they used to.
The principle (low salary + dividends) still holds, but the optimal numbers moved — last year's "ideal salary" may not be this year's. It's worth reviewing each tax year.
Getting your split right
Paying yourself well from a limited company isn't about a single magic salary — it's about balancing salary, dividends, your State Pension, the Employment Allowance and your wider income, then keeping the paperwork clean. Go Limited connects you with a partner accountant who'll set the right split for your situation and run your payroll, so you keep more of what you earn without tripping a rule. See our accountancy page, or read our dividend tax guide for the detail on how dividends are taxed.
What's the most tax-efficient way to pay yourself from a limited company?
For most directors it's a small salary plus dividends: a salary up to your personal allowance or the employer-NIC threshold, then dividends (which carry no National Insurance) on top. The exact split depends on whether your company can claim the Employment Allowance and on your wider income, so the precise optimal figure is best set by an accountant for 2026/27.
How much should a director's salary be in 2026/27?
Two common levels are around £5,000 (the employer-NIC secondary threshold, so the company pays no employer NIC) and around £12,570 (your personal allowance and employee-NIC threshold). Which is better depends on the Employment Allowance and your circumstances — but aim to pay at least enough to protect your State Pension record.
Do I pay National Insurance on dividends?
No — dividends carry no National Insurance, which is the main reason directors take part of their income that way. You do pay dividend tax above the £500 allowance, at 10.75%, 35.75% or 39.35% depending on your band for 2026/27.
Can I pay myself only in dividends?
You can, but it's usually not ideal: a small salary is deductible against Corporation Tax and helps protect your State Pension, and dividends can only be paid from real retained profit. Most directors use a salary-plus-dividends mix rather than dividends alone.
How often can I take dividends?
As often as the company has sufficient retained profit and you record each one properly (a dividend voucher and board minute). Many directors take them monthly or quarterly, but timing can also affect which tax year and band they fall into — worth planning with your accountant.
Most directors pay themselves in two parts: a modest salary plus dividends. The salary is a deductible business cost and protects your State Pension record; the dividends top up your income and carry no National Insurance, which is what makes the combination more efficient than taking everything as salary. The catch for 2026/27 is that dividend tax rates rose to 10.75% and 35.75% and employer National Insurance now starts at just £5,000 of salary, so the "best" split is tighter than it used to be — and genuinely depends on your numbers. This guide explains how it works, with the current figures, so you understand what your accountant is optimising.
All figures are for 2026/27 and sourced to gov.uk; they change at each Budget. This is general guidance, not personal tax advice — the right split for you depends on your circumstances, so have it confirmed before you set your payroll.
Why salary plus dividends beats salary alone
If you took all your income as salary, it would attract Income Tax, employee National Insurance (8% over £12,570) and employer National Insurance (15% over £5,000) (gov.uk). Dividends are different: they're paid from company profit after Corporation Tax, come with a £500 tax-free allowance, and are then taxed at lower headline rates with no National Insurance at all (gov.uk). That NIC saving is the heart of why directors mix the two.
There are two common salary levels directors use, and which is better depends on whether your company can claim the Employment Allowance (£10,500 of employer NIC relief — but most single-director companies whose only employee is that director are not eligible):
A salary around £5,000 — the employer National Insurance secondary threshold. Below this, the company pays no employer NIC. Useful for a sole director who can't claim the Employment Allowance and wants to avoid that 15% cost.
A salary around £12,570 — your personal allowance and the employee NIC threshold, so you pay no Income Tax or employee NIC on it. The company does pay 15% employer NIC on the slice above £5,000, but the salary is deductible against Corporation Tax (19%), which softens the cost — and it's often the better answer when the Employment Allowance is available (for example, a company with a second employee).
Either way, aim to pay at least enough to count as a qualifying year for your State Pension. Because the maths swings on the Employment Allowance and your wider income, this is exactly the figure an accountant pins down for you.
Step 2: top up with dividends
Once your salary is set, you draw further income as dividends — but only from actual retained profit after Corporation Tax, properly recorded with a dividend voucher and board minute. You can't pay dividends from money the company hasn't made as profit; doing so creates an illegal dividend and tax problems.
Your first £500 of dividends is tax-free. After that, dividends are taxed at the rates above, depending on which band they fall into once stacked on top of your salary. Keep an eye on the £50,270 higher-rate threshold — dividends that push you over it are taxed at 35.75% rather than 10.75%, a big step up.
Take a director who pays themselves a £12,570 salary and £40,000 in dividends in 2026/27 (rUK):
The salary uses the personal allowance, so no Income Tax on it; the company pays employer NIC at 15% on the part above £5,000.
The dividends: the first £500 is tax-free. The salary has used the personal allowance, so dividends fill the basic-rate band up to £50,270 — that slice is taxed at 10.75% — and any dividends above £50,270 are taxed at 35.75%.
The exact take-home depends on the precise split and whether the Employment Allowance applies, which is why two directors on the same total can end up with different tax bills. (Illustrative, 2026/27 rUK rates — your figures will differ.)
What changed for 2026/27 — and why it matters
Two shifts have made the split less automatic:
Dividend rates rose 2 percentage points (ordinary 8.75% → 10.75%, upper 33.75% → 35.75%) from 6 April 2026.
Employer NIC has a low £5,000 secondary threshold and a 15% rate, so salaries above £5,000 cost the company more than they used to.
The principle (low salary + dividends) still holds, but the optimal numbers moved — last year's "ideal salary" may not be this year's. It's worth reviewing each tax year.
Getting your split right
Paying yourself well from a limited company isn't about a single magic salary — it's about balancing salary, dividends, your State Pension, the Employment Allowance and your wider income, then keeping the paperwork clean. Go Limited connects you with a partner accountant who'll set the right split for your situation and run your payroll, so you keep more of what you earn without tripping a rule. See our accountancy page, or read our dividend tax guide for the detail on how dividends are taxed.
What's the most tax-efficient way to pay yourself from a limited company?
For most directors it's a small salary plus dividends: a salary up to your personal allowance or the employer-NIC threshold, then dividends (which carry no National Insurance) on top. The exact split depends on whether your company can claim the Employment Allowance and on your wider income, so the precise optimal figure is best set by an accountant for 2026/27.
How much should a director's salary be in 2026/27?
Two common levels are around £5,000 (the employer-NIC secondary threshold, so the company pays no employer NIC) and around £12,570 (your personal allowance and employee-NIC threshold). Which is better depends on the Employment Allowance and your circumstances — but aim to pay at least enough to protect your State Pension record.
Do I pay National Insurance on dividends?
No — dividends carry no National Insurance, which is the main reason directors take part of their income that way. You do pay dividend tax above the £500 allowance, at 10.75%, 35.75% or 39.35% depending on your band for 2026/27.
Can I pay myself only in dividends?
You can, but it's usually not ideal: a small salary is deductible against Corporation Tax and helps protect your State Pension, and dividends can only be paid from real retained profit. Most directors use a salary-plus-dividends mix rather than dividends alone.
How often can I take dividends?
As often as the company has sufficient retained profit and you record each one properly (a dividend voucher and board minute). Many directors take them monthly or quarterly, but timing can also affect which tax year and band they fall into — worth planning with your accountant.
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