Dividend vs Salary: How to Pay Yourself From Your Limited Company in 2026/27

If you run a limited company, deciding whether to take money as salary or dividends can affect your personal tax, National Insurance and the company’s Corporation Tax. There is no single split that works for every director: the right approach depends on your company’s profits, other income and plans for the money.

Here’s how the two options work, the 2026/27 figures to know, and what to check before you pay yourself. The rates below reflect the published position on 23 October 2026, ahead of the Autumn Budget scheduled for 28 October. Check for changes before acting.

Salary and dividends: the basic difference

Salary is pay for your work as a director or employee. It is processed through payroll, with PAYE and National Insurance where due. For the company, genuine remuneration is generally an allowable expense when it is incurred for the business. That can reduce the company’s taxable profit and its Corporation Tax bill.

Dividends are distributions to shareholders from profits available for distribution. They are paid from profits after Corporation Tax and are not a deductible business expense. A dividend does not reduce the company’s Corporation Tax bill.

This distinction matters. A dividend may avoid National Insurance, but that does not automatically make it more tax-efficient overall: the company has already paid, or will pay, Corporation Tax on the profits used to fund it.

What changes the calculation in 2026/27?

National Insurance on salary

For most directors, employee Class 1 National Insurance is 8% on earnings between the annual Primary Threshold of £12,570 and the Upper Earnings Limit of £50,270, then 2% above that. Employer National Insurance is generally 15% on earnings above the £5,000 Secondary Threshold.

Salary below these thresholds does not necessarily mean that all National Insurance considerations disappear. Your earnings and circumstances can affect National Insurance credits and benefits, so consider those as well as the immediate tax bill.

An eligible employer may be able to claim Employment Allowance of up to £10,500 against its employer National Insurance bill. There are conditions: for example, a company with only one director cannot claim if that director is its only employee liable for employer Class 1 National Insurance. Check the eligibility rules before including it in your calculations.

Dividend tax and the allowance

For 2026/27, the dividend allowance is £500. It means you do not pay dividend tax on the first £500 of dividend income, but it is not an extra tax band: dividends still count when working out which Income Tax band applies to your total income.

Above the allowance, dividend tax rates are:

• 10.75% at the basic rate

• 35.75% at the higher rate

• 39.35% at the additional rate

Your salary, dividends and other taxable income all matter. If your income falls across bands, different parts of your dividend income may be taxed at different rates. The standard Personal Allowance is £12,570, and it can be reduced for people with higher incomes. If you live in Scotland, Income Tax rates on salary and other non-savings income differ, so the calculation needs extra care. See HMRC’s dividend tax guidance for the rates and how the allowance works.

Corporation Tax and company profit

For most companies, the small-profits Corporation Tax rate is 19% on profits under £50,000; the main rate is 25% on profits over £250,000. Profits between those limits are generally subject to marginal relief, creating a gradual increase in the effective rate. The thresholds may be reduced for companies with associated companies.

A salary that qualifies as a business expense can reduce taxable profit. A dividend cannot. So a proper comparison looks at the combined effect on both you and your company, not just the personal tax on a payment.

Three ways to take money out

The following comparison is illustrative, not a recommendation. Each route assumes the company can afford the payment, and it does not try to calculate an individual’s total tax bill.

Approach	What happens	What to weigh up
Salary only	You receive pay through payroll. The company records genuine salary as an expense.	Salary can reduce taxable company profits, but employee and employer National Insurance may apply. It also uses your Income Tax bands.
Lower salary plus dividends	You receive salary through payroll and, if the company has sufficient distributable profits, dividends as a shareholder.	Dividends do not attract National Insurance, but they are paid from post-Corporation-Tax profits and may incur dividend tax. Check the Employment Allowance and your other income.
Higher salary	More of your drawings are paid through payroll rather than as dividends.	The company may get a deduction for genuine remuneration, but additional salary can bring more Income Tax and National Insurance. It may still make sense for your circumstances or company position.

The comparison is not simply “salary is deductible, therefore salary wins” or “dividends avoid National Insurance, therefore dividends win”. The outcome depends on the level of company profits, the Corporation Tax rate that applies, your other income and whether the company can use Employment Allowance. It also depends on what you need personally and what you want to leave in the company.

Don’t overlook pension contributions

An employer pension contribution may be another way for the company to provide for you, rather than paying the same amount as salary or dividends. It is not take-home pay: the money goes into a pension and access is subject to pension rules.

The standard annual allowance is £60,000 for 2026/27, but your available allowance may be lower. Tapering can apply at higher income levels, and different rules can apply if you have flexibly accessed a pension. Employer contributions count towards the annual allowance. They may be deductible for the company when they meet the relevant business-expense rules. Review the position before making a contribution, particularly if you have other pension savings. HMRC’s pension allowance guidance sets out the current figures.

Make sure a dividend is properly declared

A dividend is not just a transfer from the company bank account to your personal account. The company must have sufficient distributable reserves. Broadly, accumulated realised profits available for distribution after relevant losses. A healthy bank balance on its own does not prove that a dividend is lawful.

Before paying one:

• Check the company’s accounts or suitable up-to-date financial information and confirm the available reserves.

• Check the company’s articles and share rights, including who is entitled to the dividend.

• Record the decision in a board minute, stating the amount and payment date.

• Prepare a dividend voucher for each shareholder receiving a dividend, and retain the paperwork.

If a company pays a dividend without sufficient distributable profits, it may be an unlawful distribution. The consequences depend on the facts, so do not assume that a payment can simply be relabelled afterwards. GOV.UK’s guide to taking money out of a limited company explains the basics.

A practical checklist before deciding

• Have you considered your other income and the dividend tax bands it may use?

• Have you included employee and employer National Insurance, and checked whether Employment Allowance is available?

• Have you compared the personal tax and company Corporation Tax effects together?

• Is there enough cash for the payment and enough distributable profit for a dividend?

• Would an employer pension contribution fit your wider plans and available allowance?

• Are payroll records, board minutes and dividend vouchers in order?

A good dividend vs salary decision is part of wider remuneration and tax planning. It should fit your company’s profits, your household position and your plans for the business, not just copy a rule of thumb from another director.

At BCT, our Chartered Tax Adviser can look at the company and personal figures together, explain the options in plain English and help you plan before you make a payment. If you’d like to talk it through, you can find out about our tax planning and consultancy or arrange a free, no-obligation consultation.

Tax rates and thresholds can change. The 2026/27 figures in this article reflect published information available on 23 October 2026, before the scheduled Autumn Budget on 28 October. Check the current rules and your own circumstances before acting.