Guide
How to pay yourself from a limited company
The best mix of salary and dividends for 2026/27, with worked figures, and the rules to follow when you take money out.
As a limited company director you decide how to pay yourself, and the mix of salary and dividends makes a real difference to your tax bill. For most single-director contractors in 2026/27, the answer is a salary of £12,570 a year with the rest taken as dividends. This guide shows why, with the numbers.
Why salary plus dividends?
Salary is a business expense, so it reduces your company’s corporation tax. But above certain thresholds it also costs National Insurance: employer NI at 15% on salary above £5,000, and employee NI at 8% above £12,570.
Dividends are paid from profit after corporation tax, so they don’t reduce it, but they carry no National Insurance and have their own lower tax rates: 10.8% in the basic-rate band and 35.8% in the higher-rate band, after a £500 allowance. The best mix uses salary up to the point where its corporation tax saving stops outweighing the National Insurance, then switches to dividends.
The numbers at different salaries
| Salary | Employer NI | Corporation tax | Dividends | Income + dividend tax | You keep |
|---|---|---|---|---|---|
| £0 | £0 | £22,750 | £77,250 | £13,644 | £63,606 |
| £5,000 | £0 | £21,425 | £73,575 | £14,118 | £64,457 |
| £12,570 | £1,136 | £19,118 | £67,176 | £14,537 | £65,210 |
| £20,000 | £2,250 | £16,854 | £60,896 | £16,230 | £64,667 |
| £50,270 | £6,791 | £8,159 | £34,781 | £22,811 | £62,240 |
“Income + dividend tax” includes your employee NI. All profit left after salary and corporation tax is paid out as dividends. England, Wales and Northern Ireland bands; no student loan or pension contributions.
Why £12,570 beats a lower salary
Many older guides recommend a salary just under the National Insurance thresholds, so that no NI is paid at all. Since employer NI rose to 15% and its threshold fell to £5,000, that advice no longer gives the best result for most directors.
At £12,570, the company pays £1,136 of employer NI, but the extra salary saves more than that in corporation tax, and it’s all covered by your personal allowance, so there’s no income tax and no employee NI. Above £12,570, every extra pound of salary is taxed at 20% and costs employee NI as well, so dividends become the cheaper way to take money out.
One caveat: a company whose only employee is its director can’t claim the Employment Allowance, which is why this guide includes the employer NI. If your company has other employees on the payroll and can claim it, a £12,570 salary becomes even more clearly the best choice.
Other things to get right
- Run a payroll. Even a £12,570 salary has to go through PAYE, with a monthly submission to HMRC. A salary at this level also keeps your State Pension record building.
- Only pay dividends from profit. A dividend is only legal if the company has enough retained profit after corporation tax to cover it. Record each one with board minutes and a dividend voucher.
- Set money aside for tax. Dividend tax isn’t deducted at source. It’s paid through Self Assessment, by 31 January after the end of the tax year, often with payments on account towards the next year. The dividend tax calculator shows how much to put aside.
- Watch the £100,000 line. If your total income goes over £100,000, you start losing your personal allowance, which creates an effective 60% tax rate on that slice. Leaving profit in the company or paying into a pension can keep you below it.
- Consider employer pension contributions. Payments from your company straight into your pension are usually deductible for corporation tax and carry no NI or income tax, which can beat both salary and dividends.
When a different salary makes sense
A higher salary can help if you need a strong employment income for a mortgage application, or if you want to make larger personal pension contributions, which are limited by your earned income. A lower salary can make sense if you have other employment income that already uses your personal allowance. These are trade-offs, so it’s worth checking with your accountant before changing your payroll.
This guide is general information, not financial or tax advice. Figures are estimates for England, Wales and Northern Ireland; speak to an accountant before making decisions.