How to pay yourself as a limited company director (2026/27)

How can a director take money out of a limited company?

There are three main routes: a salary through payroll, dividends from profits, and pension contributions paid by the company. Most directors use a mix, because each is taxed differently (GOV.UK: taking money out of a limited company).

Income tax rates in the table are for England, Wales and Northern Ireland (GOV.UK: Income Tax rates). Scottish taxpayers pay Scottish rates on salary but the same UK rates on dividends. National Insurance rates come from GOV.UK's 2026/27 rates for employers.

What salary should a director take in 2026/27?

For most directors, £12,570 a year, or £1,047.50 a month. That uses your Personal Allowance, so there is no income tax, and it sits at the Primary Threshold, so there is no employee National Insurance. Because it is above the Lower Earnings Limit of £6,708, your contributions are treated as paid, protecting your National Insurance record for the State Pension (GOV.UK: National Insurance).

The company does pay employer National Insurance at 15% on pay above £5,000, which is £1,135.50 on a £12,570 salary. The Employment Allowance can cover up to £10,500 of employer National Insurance a year, but not if you are the only director and the only employee paid above £5,000 (GOV.UK: Employment Allowance eligibility). Our payroll service can set up and run a director-only payroll for you.

Even with that cost, £12,570 usually beats a lower salary, because the salary and the employer National Insurance both reduce Corporation Tax. At the 19% rate, raising your salary from £6,708 to £12,570 costs the company £6,741.30 including National Insurance, saves £1,280.85 of Corporation Tax and puts £5,862 in your pocket tax-free. If the company paid out that net cost of £5,460.45 as a dividend instead, you would end up about £358 worse off, assuming you also take dividends taxed at the basic rate.

Is a higher salary ever better?

Sometimes, if your company can claim the Employment Allowance, for example because another director or an employee is also paid above £5,000. Employer National Insurance is then covered, and each extra £1 of salary above £12,570 leaves you 72p after 20% income tax and 8% employee National Insurance. Through dividends, the same £1 of profit leaves you about 72p where the company pays 19% Corporation Tax, but about 67p at 25% and 66p at the 26.5% marginal rate. It is worth running the numbers.

How are dividends taxed in 2026/27?

Dividends above your £500 dividend allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The basic and higher rates each rose by 2 percentage points on 6 April 2026 (GOV.UK: Income Tax rates and allowances).

Dividends are paid from profit after Corporation Tax, so they do not reduce the company's tax bill, and they carry no National Insurance. To work out your band, GOV.UK says to add all your dividends to your other income, so dividends covered by the allowance still use up part of your basic rate band (GOV.UK: tax on dividends). Our dividend tax calculator does the sums for you.

Worked example: £12,570 salary plus £37,700 of dividends

Taking dividends to the edge of the basic rate band means £37,700 of dividends on top of a £12,570 salary, £50,270 in total. With no other income, your personal tax is £3,999.

You keep £46,271, an effective personal tax rate of about 8%. There is no employee National Insurance, because the salary is at the Primary Threshold.

What it costs the company

To fund this, the company needs £60,248.71 of profit before your pay, assuming it pays 19% Corporation Tax and cannot claim the Employment Allowance.

Across you and the company, total tax and National Insurance comes to £13,977.71, about 23% of the profit. The example assumes a single director with no other income, a 12-month accounting period, no associated companies, enough retained profit to pay the dividend and 2026/27 rates. Try your own figures in our tax savings calculator.

How much Corporation Tax sits behind your dividends?

Dividends come out of profit that has already been taxed. For a 12-month accounting period with no associated companies, the company pays 19% on profits up to £50,000 and 25% on profits over £250,000 (GOV.UK: Corporation Tax rates). In between, marginal relief means each extra pound of profit is effectively taxed at 26.5% (HMRC manual CTM03925).

Those limits are shared. They are divided by the number of associated companies plus one, so a company with one associated company has limits of £25,000 and £125,000, and they are reduced for accounting periods shorter than 12 months (GOV.UK: marginal relief).

The table assumes your £500 dividend allowance is already used. A higher rate dividend paid from profits in the marginal band loses about 53% to tax overall, which is why the company's rate matters when you plan. Our corporation tax calculator works out the figure for your profits.

When is a pension contribution better than more dividends?

Often, once your income passes £50,270 and you don't need the money now. A contribution the company pays into your pension is usually deductible for Corporation Tax, and there is no income tax or National Insurance when it goes in.

Compare £10,000 of profit in the marginal band. As a company pension contribution, all £10,000 goes into your pension. As a higher rate dividend, the company first pays £2,650 of Corporation Tax, then you pay £2,627.63 of dividend tax, leaving £4,722.37. The pension money is locked away until pension age and taxed when you draw it, although you can usually take up to 25% tax-free, up to a maximum of £268,275 (GOV.UK: tax-free pension).

Contributions from you and the company count towards the annual allowance, which is £60,000 for 2026/27 (GOV.UK: annual allowance). You may be able to carry forward unused allowance from the previous 3 tax years if you were in a registered pension scheme in each of them (GOV.UK: carry forward). The allowance tapers down to £10,000 for people with threshold income over £200,000 and adjusted income over £260,000, and a £10,000 money purchase annual allowance applies once you have flexibly accessed a pension (GOV.UK: pension schemes rates).

Your own personal contributions only get tax relief on up to 100% of your earnings, or £3,600 gross if that is higher (GOV.UK: pension tax relief). Dividends do not count as earnings for this (HMRC manual PTM044100). On a £12,570 salary that limit bites quickly, which is another reason directors usually contribute through the company.

What happens if my income goes over £100,000?

Your Personal Allowance falls by £1 for every £2 of adjusted net income above £100,000 and disappears completely at £125,140 (GOV.UK: income over £100,000). In that band, extra salary is effectively taxed at 60%, plus 2% employee National Insurance. For a director on a £12,570 salary who takes the rest as dividends, the effective rate on extra dividends is about 58%.

Pension contributions are the usual fix. Company contributions are not part of your income at all, and personal contributions paid with relief at source reduce your adjusted net income by their grossed-up amount, £1.25 for every £1 you pay (GOV.UK: adjusted net income). Gift Aid donations work the same way.

If you or your partner get Child Benefit, watch £60,000 too. Once either of you has adjusted net income over £60,000, the High Income Child Benefit Charge claws back 1% of the benefit for every £200 above it, and all of it at £80,000 (GOV.UK: Child Benefit tax charge).

What if I take more than my salary and dividends?

Anything you take that is not salary, a dividend or a repaid expense is a director's loan, and the company must keep a record of it (GOV.UK: directors' loans). If your loan account is still overdrawn 9 months after the company's year end, the company pays a s455 Corporation Tax charge on the balance.

The rate follows the dividend upper rate for the tax year in which the loan was made. GOV.UK's public guide to director's loans still shows the older rates of 33.75% and 32.5%, but HMRC's own manual confirms 35.75% for loans made from 6 April 2026 (HMRC manual CTM61505).

The charge is due 9 months and 1 day after the year end, with the rest of the company's Corporation Tax. There is nothing to pay if the loan is repaid, released or written off within 9 months of the year end. If it is repaid later, the company can reclaim the tax, but not until 9 months and 1 day after the end of the accounting period in which it was repaid (GOV.UK: if you owe your company money).

Two more things to watch. If your loans total more than £10,000 at any point in the tax year and you pay less than HMRC's official rate of interest, 3.75%, it is a taxable benefit, reported on a P11D with Class 1A National Insurance (GOV.UK: loans to employees; ITEPA 2003 section 180). And repaying just before the deadline, then borrowing the money straight back, does not work: anti-avoidance rules can match a repayment of £5,000 or more with new loans of £5,000 or more taken within 30 days (CTA 2010 section 464ZA). Clearing the balance with a properly declared dividend or bonus is not caught, because that is taxed as income.

What paperwork do I need when I pay a dividend?

A dividend must be backed by profits and recorded properly. GOV.UK says a company must not pay out more in dividends than its available profits from current and previous financial years (GOV.UK: dividends).

• Check reserves first, against up-to-date accounts, after allowing for the Corporation Tax the company owes.
• Hold a directors' meeting to declare the dividend and keep minutes, even if you are the only director.
• Write a dividend voucher for each payment, give a copy to each shareholder and keep a copy for the company.
• Pay in line with the shares held: the same amount per share within a class, as your articles allow.

A dividend paid without enough profit is unlawful and may have to be repaid, so the money can end up as an overdrawn loan account instead. If your profits are uneven through the year, talk to us before you take a dividend, not after. Our Corporation Tax service includes this kind of year-round planning.

Can I share income with my family or take tax-free extras?

Yes, within the rules. A spouse or civil partner who owns shares outright, or works in the business for a fair salary, can use their own Personal Allowance, dividend allowance and basic rate band. HMRC's settlements rules stop shortcuts such as giving a spouse income-only shares, so set it up carefully. Our guide to paying your spouse and children explains how.

A few tax-free extras can sit alongside your salary and dividends. Trivial benefits of £50 or less each are tax-free, capped at £300 a year for directors of close companies (GOV.UK: trivial benefits), and an annual staff event open to all employees is exempt up to £150 a head (GOV.UK: staff events). Our guide to tax reliefs business owners miss covers more.