How to pay yourself tax-efficiently from your UK limited company. Optimal salary, dividend planning and a free calculator using current HMRC rates.
Use the Calculator ↓As a UK limited company director, you don’t simply “take a wage.” You choose how to extract profits from the company — and the split between salary and dividends has a significant impact on how much tax you pay.
Most directors pay themselves a low salary (to stay within the Personal Allowance) and take the rest as dividends from retained profits. This minimises National Insurance while keeping income tax efficient.
The optimal split depends on your company’s profits, whether you have other employees, and your personal circumstances. This guide covers the 2026/27 tax year rates and includes a calculator to model your own scenario.
| Band | Rate | Threshold |
|---|---|---|
| Personal Allowance | 0% | Up to £12,570 |
| Basic Rate | 20% | £12,571 – £50,270 |
| Higher Rate | 40% | £50,271 – £125,140 |
| Additional Rate | 45% | Over £125,140 |
| Band | Rate |
|---|---|
| Dividend Allowance | £500 tax-free |
| Basic Rate | 10.75% |
| Higher Rate | 35.75% |
| Additional Rate | 39.35% |
Dividend rates increased by 2 percentage points from 6 April 2026.
| Type | Rate | Threshold |
|---|---|---|
| Employee NIC (Class 1) | 8% | Above £12,570 |
| Employer NIC | 15% | Above £5,000 |
| Employment Allowance | £10,500 | Not available to sole-director companies |
| Profit Band | Rate |
|---|---|
| Up to £50,000 | 19% |
| £50,001 – £250,000 | ~26.5% effective (marginal relief) |
| Over £250,000 | 25% |
The most tax-efficient salary is £12,570 — the Personal Allowance level. This means:
The £1,135.50 employer NIC is a deductible business expense, reducing your Corporation Tax bill. The net cost of employer NIC is therefore closer to £920 after CT relief.
Some directors choose £5,000 (the employer NIC secondary threshold) to eliminate all NIC entirely. However, this may not count as a qualifying year for State Pension, and the tax saving versus £12,570 is marginal once CT relief on the employer NIC is factored in.
If your company employs at least one other person, it may qualify for Employment Allowance (£10,500 for 2026/27). This offsets employer NIC, potentially making a higher salary more tax-efficient. Speak to your accountant to model the optimal figure.
For most sole directors in 2026/27, a salary of £12,570 plus dividends from retained profits is the most tax-efficient approach. Get personalised advice.
AccTek handles dividend planning, board minutes and vouchers as part of every limited company startup package. See also: Sole Trader vs Limited Company | VAT Registration | Startup Bookkeeping.
A sole director with no other income and £60,000 company profit before salary:
Compare this to taking the full £60,000 as salary, where the combined income tax, employee NIC and employer NIC would result in an effective rate of over 35%.
Enter your company’s pre-salary profit to see the tax-efficient breakdown. This calculator uses current 2026/27 HMRC rates.
| Recommended Salary + Dividends |
If All Salary | |
|---|---|---|
| How the £0 leaves the company | ||
| Salary paid | £0 | £0 |
| Employer NIC | £0 | £0 |
| Corporation Tax | £0 | — |
| Dividends paid to you | £0 | — |
| Your personal tax deductions | ||
| Employee NIC | £0 | £0 |
| Income tax on salary | £0 | £0 |
| Dividend tax | £0 | — |
| Your take-home | £0 | £0 |
| Effective tax rate | 0% | 0% |
| You save with salary + dividends | £0 | |
This calculator provides estimates based on 2026/27 HMRC rates. It assumes no other income, a single company with one associated company, and standard tax bands. Your personal circumstances may differ — speak to AccTek for personalised advice.
Taking all company profit as salary means paying:
Dividends avoid NIC entirely. Even after Corporation Tax is paid on the profit first, the combined tax rate on dividends is lower than salary for most directors.
The salary-plus-dividends approach typically saves between £3,000 and £15,000+ per year depending on your company’s profit level.
For a sole director without Employment Allowance, the most tax-efficient salary is £12,570 — the Personal Allowance level. No income tax is payable on this salary, and employee NIC is zero. Employer NIC of £1,135.50 applies but is a deductible business expense.
Dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate). The first £500 is tax-free. These rates increased by 2 percentage points from 6 April 2026.
Most UK limited company directors pay a combination — a low salary (£12,570) plus dividends. This minimises National Insurance while maintaining income tax efficiency. The optimal split depends on company profits and personal circumstances.
No. Dividends are not subject to NIC — neither employee nor employer. This is the key reason dividends are more tax-efficient than salary for director-shareholders.
Employment Allowance is a £10,500 reduction in employer NIC for 2026/27. Companies where the sole employee is also a director are not eligible. If you have at least one other employee, the company may qualify.
No. Dividends can only be paid from retained profits. Paying dividends without sufficient retained profits is unlawful and may need to be repaid to the company.
No. Only salary or self-employed earnings count for State Pension. A salary of £12,570 is above the lower earnings limit (£6,396), so it preserves your State Pension entitlement.
Hold a board meeting, agree the amount, record it in minutes, issue a dividend voucher with date and amount, and transfer funds to your personal account. AccTek handles this as part of every limited company package.
Basic rate: 10.75%. Higher rate: 35.75%. Additional rate: 39.35%. The Dividend Allowance is £500.
Salary above the Personal Allowance attracts income tax (20%+), employee NIC (8%) and employer NIC (15%). This makes high salaries significantly less tax-efficient than a salary-plus-dividends approach.
Every founder’s situation is different. AccTek builds a personalised remuneration plan based on your actual numbers.
This calculator provides estimates using 2026/27 HMRC rates. It is for illustrative purposes only and does not constitute tax advice. Individual circumstances vary — contact AccTek for personalised advice. Content by Godwin Pinto, ACA (ICAEW).
