How to pay yourself as a company director: Salary and dividends 2026/27

If you run your own limited company, “how much should I actually pay myself” is one of those questions that never quite goes away. The rules shift most years, and 2026/27 is no exception.

Here’s the short version: most directors still do best on a low salary topped up with dividends, but the 2026 dividend tax rise has narrowed the gap. The right numbers depend on whether your company has other staff on the payroll, so it’s worth checking your own position rather than copying last year’s split.

Here’s how the sums actually work this year.

The quick answer for 2026/27

For most owner-directors, the combination looks like this:

• A salary set at £12,570 (the personal allowance) or £6,708 (the lower earnings limit), depending on your setup
• The rest of your income taken as dividends, after Corporation Tax
• The £500 tax-free dividend allowance used before anything else

Which salary figure suits you comes down to one thing: whether your company can claim the Employment Allowance.

Why salary and dividends work better together than salary alone

Paying yourself entirely through salary means Income Tax, employee National Insurance and often employer National Insurance too, all landing on the same pound of income before it reaches your bank account.

Dividends sidestep National Insurance completely. There’s a trade-off though: the company pays Corporation Tax on its profits first, and dividends aren’t a deductible expense the way salary is. A small salary still earns its place because it reduces the company’s taxable profit and, if set correctly, costs little or nothing in NI.

What salary should I pay myself in 2026/27?

Most sole directors pay either £6,708 (the lower earnings limit, protecting your state pension record) or £12,570 (using the full personal allowance). Companies with a second employee earning above the secondary threshold can often claim the Employment Allowance, making £12,570 the cleaner choice.

Working out your salary: The thresholds that matter

The figures behind that decision, for 2026/27:

• Employee NI threshold (Primary Threshold): £12,570 – no employee NI below this
• Employer NI threshold (Secondary Threshold): £5,000 – employer NI applies above this at 15%
• Lower Earnings Limit: £6,708 – the minimum needed for a qualifying year towards your state pension
• Employment Allowance: up to £10,500 off employer NI, but sole-director companies with no other staff on payroll usually can’t claim it

That last point catches a lot of directors out. If you’re the only person on the payroll, pushing your salary up to £12,570 typically means an employer NI bill of somewhere around £1,130 a year, since the allowance that would otherwise cover it isn’t available to you. It’s still often worth paying, once you factor in the Corporation Tax relief on the salary itself, but it’s a genuine cost rather than a free lunch.

The 2026 dividend tax rise changes the sums

From 6 April 2026, dividend tax rates went up by 2 percentage points across the board:

• Basic rate: 10.75% (up from 8.75%)
• Higher rate: 35.75% (up from 33.75%)
• Additional rate: 39.35% (unchanged)

The £500 tax-free dividend allowance stayed put, as it has done for several years now, having fallen from £5,000 back in 2016/17.

A worked example: take a director drawing £60,000 from their company, similar to the profit level where we’ve previously shown a limited company starts to pull ahead of sole trader status. On a £12,570 salary plus dividends, that extra 2 percentage points on dividend tax adds somewhere in the region of £900–£1,000 to the annual bill compared with 2025/26, purely from the rate change. The salary/dividend split hasn’t stopped being the more efficient route, but the margin over an all-salary approach is tighter than it used to be.

Other factors worth weighing up

Before locking in a figure, think about:

• Pension contributions made by the company, which reduce Corporation Tax and sit outside the salary/dividend calculation entirely
• Profit you don’t need to draw, since retained profit is taxed at 19–25% Corporation Tax rather than personal rates
• Marginal relief, which tapers the Corporation Tax rate between £50,000 and £250,000 of profit rather than jumping straight from 19% to 25%

None of this is a one-size answer. Your ideal split depends on your profit level, whether you have a second director or employee on the books and what else you’re drawing from the business.

How SBX can help

We work through this exact calculation with clients every year as part of our payroll and director self assessment services, factoring in your actual profit, your Employment Allowance eligibility and anything else going on personally. We also handle the Company Tax Return that sits behind all of this, so the numbers stay joined up rather than guessed at in isolation.

Not sure your current salary and dividend split still stacks up under the new rates? Book a free consultation and we’ll run the actual figures for your company, in plain English.

Frequently asked questions

Do I need to pay myself a salary at all?

No, but most directors should. A small salary reduces the company’s Corporation Tax bill and, set at the right level, protects your state pension entitlement at little or no NI cost. Taking dividends alone usually means missing out on both.

Is dividend tax the same across the whole UK?

Yes. Dividend tax rates and the dividend allowance apply UK-wide, including Scotland, regardless of the Scottish rates that apply to earned income such as salary.

How often can I pay myself dividends?

As often as the company has distributable profit to support, provided proper board minutes and dividend vouchers are kept. Paying dividends without sufficient profit behind them can create problems with HMRC later, so it’s worth checking the figures before each payment.

Figures in this article are based on confirmed 2026/27 rates and thresholds. Your own optimal salary and dividend split depends on your profit, your Employment Allowance eligibility and your wider personal income, so treat the numbers above as a starting point rather than personal advice.