How to Pay Yourself as a Company Director in 2026/27

If you own and run your own limited company, few decisions matter more to your take-home than how you pay yourself. The answer used to be almost automatic: a small salary and the rest as dividends. That is still usually the right shape — but two rounds of dividend tax rises and a higher rate of employer National Insurance have narrowed the gap, and last year’s plan is no longer guaranteed to be this year’s. Here is how it works for 2026/27, in plain terms, with the numbers shown.

The 2026/27 figures this all turns on

• Personal allowance: £12,570 (frozen).
• Basic rate band up to £50,270; higher rate above that.
• Secondary (employer) NIC threshold: £5,000; employer NIC rate above it: 15%.
• Primary (employee) NIC threshold: £12,570.
• Employment Allowance: £10,500 — but not available to a company whose only employee is a single director.
• Dividend allowance: £500.
• Dividend tax rates: 10.75% basic, 35.75% higher, 39.35% additional (both the basic and higher rates rose two points from 6 April 2026).
• Corporation tax: 19% on profits up to £50,000, a marginal band with a 26.5% effective rate to £250,000, and 25% above.

Why a modest salary plus dividends still generally wins

The logic has not changed, even if the margin has. A salary is a deductible cost for the company, so it reduces the profit subject to corporation tax. Dividends are not deductible — they are paid out of profit the company has already been taxed on — but they attract no National Insurance and are taxed at lower rates than salary in the equivalent band. Combining a salary up to a sensible point with dividends on top typically beats an all-salary or all-dividend approach. The two dividend rate rises have made it a closer-run thing than it was, which is exactly why it is worth reviewing rather than assuming.

Setting the salary

Three things pull the salary decision in different directions: preserving your National Insurance record (a salary at or above the relevant level secures a qualifying year towards your state pension), using your tax-free personal allowance, and minimising employer NIC. The right level depends heavily on whether the company can claim the Employment Allowance.

If you are a sole director with no other employees, you almost certainly cannot claim the Employment Allowance — the rules specifically exclude a company whose only person on the payroll is a single director. That matters, because it means employer NIC on your salary is a real cost with nothing to offset it. Even so, for most sole-director companies we still recommend a salary of £12,570 (the full personal allowance). At that level you pay no income tax and no employee NIC; the company pays employer NIC only on the slice above £5,000 — (£12,570 − £5,000) × 15% = about £1,136 — but both the salary and that NIC are deductible against corporation tax, and the corporation tax saved on the extra salary usually outweighs the NIC cost. The main exception is a loss-making or very low-profit company, where stopping at the £5,000 threshold can be better.

If the company has other employees and can claim the Employment Allowance, the £12,570 salary becomes even more attractive, because the allowance can wipe out that £1,136 of employer NIC entirely (subject to it not already being used up by the wider payroll).

There is a fuller worked comparison in our companion post, Employer NIC at 15%: rebuilding your salary and dividend mix.

Taking dividends — and doing it lawfully

This is where directors most often go wrong, and it is not about the tax — it is about the mechanics. A dividend is only lawful if it is properly declared out of profits the company is actually allowed to distribute. Three things need to be right every time:

• Distributable profits. You can only pay a dividend out of accumulated, realised profits after corporation tax — not out of cash in the bank, and not out of money that is really the taxman’s or a supplier’s. Cash in the account is not the same as distributable profit; this catches people out constantly.
• A board minute. The decision to declare the dividend should be recorded in a short board minute, dated on or before the payment.
• A dividend voucher. Each dividend should be documented with a voucher showing the company, the date, the shareholder and the amount.

A dividend paid without sufficient distributable profits is unlawful and can be reclassified — often as a directors’ loan, which brings its own tax charge. Getting the paperwork right in real time (not backdated at the year-end) is one of the cheapest bits of insurance against an HMRC enquiry. Our post on directors’ loans and overdrawn loan accounts explains what happens when this goes wrong.

Where dividends sit in your tax calculation — and why it matters

Dividends are always taxed last — stacked on top of all your other income. That has an important consequence people miss: a modest salary does not protect a large dividend from the higher rate. Your salary uses up the bottom of your tax bands, and the dividend sits on top of it. Once your combined income crosses £50,270, the dividends above that line are taxed at the higher dividend rate of 35.75%, not the basic 10.75%. Taking a small salary does not somehow shield the dividends underneath — the total is what counts.

A worked example

Sole-director company, £60,000 profit before the director’s salary.

• Salary of £12,570, plus about £1,136 employer NIC — both deductible.
• Profit left after salary and NIC: about £46,294, taxed at 19% corporation tax = about £8,796.
• Distributable profit of roughly £37,500, paid as dividends.
• The first £500 of dividend is covered by the dividend allowance; the salary has used most of the personal allowance and basic-rate room, so the bulk of the dividend falls in the basic band at 10.75%. Dividend tax is around £3,980.
• Total personal take-home: roughly £46,100 across salary and dividends, net of tax.

Now push the profit to £90,000. The same £12,570 salary is taken, but a chunk of the dividends now sits above £50,270 and is taxed at 35.75% rather than 10.75%. That higher-rate slice is where a lot of contractors feel the two rate rises most sharply — and where planning (pension contributions, timing, or leaving some profit in the company) earns its keep. These are illustrative figures rounded for clarity; your own numbers deserve a proper calculation.

Alternatives and add-ons worth knowing about

• Employer pension contributions. The company pays into your pension as a deductible cost, with no income tax or NIC at the point of contribution. With dividend rates up, this is relatively more attractive than it was — see our pension post.
• Spouse shareholdings. Splitting dividends with a spouse who genuinely owns shares can use two sets of allowances and bands. But the shares must represent a real, beneficial change of ownership — HMRC scrutinises arrangements that exist only to save tax, and the “settlements” rules can bite. Do not do this on the strength of a pub tip; take advice.
• Leaving profit in the company. If you do not need all the cash, retaining profit (taxed at 19% or 25%) and drawing it in a later year can be more efficient than pushing yourself into the higher dividend rate now.

The bigger picture: two rate rises and the incorporation case

Each of the last two dividend rate increases has chipped away at the tax advantage of trading through a company rather than as a sole trader. The company route usually still wins once you weigh in limited liability, flexibility and the ability to time your income — but “usually” is doing more work than it used to. If you incorporated years ago purely for the tax saving, it is worth checking the sums still stack up. Our sole trader versus limited company post is the place to start, and our dividend tax rise post covers the change itself.

How MCC Partners can help

We model the salary-and-dividend mix for owner-directors across Gravesend, Dartford, Medway and the wider Kent area on their actual figures — not a rule of thumb — and make sure every dividend is declared lawfully and documented properly. A short review at the start of the year, and a check-in before the year-end, is usually all it takes to keep you efficient and safe.

Figures and tax rules are correct as at the date of writing (October 2026) and reflect the 2026/27 tax year. Tax rules change — and with a new Chancellor and an Autumn Budget expected, some may change again. Please check the current position or speak to us before acting on anything in this article.