Salary vs dividends for company directors: 2026/27
By Oakridge Accounting · Updated 7 min readFigures for 2026/27
The short answer
- For most one-director companies in 2026/27, a salary of £12,570 (the personal allowance), with the rest taken as dividends, is the most tax-efficient mix.
- Dividend tax rates went up on 6 April 2026, to 10.75% (basic rate) and 35.75% (higher rate). The additional rate stays at 39.35% and the dividend allowance is still £500.
- Employers pay 15% National Insurance on salary above £5,000 a year. If you're the only employee and a director, you can't claim the Employment Allowance to cover it.
- A salary above £6,708 a year counts towards your State Pension; £5,000 does not.
The 2026/27 figures
| 2026/27 | |
|---|---|
| Personal allowance | £12,570 |
| Basic rate band (total income) | Up to £50,270 |
| Dividend allowance | £500 |
| Dividend tax: basic / higher / additional rate | 10.75% / 35.75% / 39.35% |
| Employer National Insurance | 15% above £5,000 a year |
| Employee National Insurance | 8% above £12,570 a year |
| Lower earnings limit (State Pension qualifying year) | £6,708 a year |
| Corporation tax | 19% on profits up to £50,000; 25% above £250,000; marginal relief in between |
Scottish taxpayers have different income tax bands on salary, but pay the same dividend rates as the rest of the UK.
Why £12,570 usually beats £5,000
A salary up to £12,570 is free of income tax and employee National Insurance, because it's covered by your personal allowance and the primary threshold. Above £5,000, though, the company pays 15% employer National Insurance. So is it worth paying the extra £7,570 as salary?
For a company paying corporation tax at 19%, it is. Paying the extra £7,570 as salary costs the company £8,705.50 including National Insurance, all of which is deductible for corporation tax, and you receive the full £7,570 tax-free. If the company instead kept that £8,705.50 as profit, it would pay £1,654 of corporation tax and could pay you a dividend of about £7,051, which is about £519 less. The higher the company's corporation tax rate, the bigger the gap.
A salary above the lower earnings limit (£6,708 for 2026/27) also earns you a qualifying year towards your State Pension. A £5,000 salary doesn't.
When the answer is different
- If the company can claim the Employment Allowance (for example, because it has another employee who isn't a director), the first £10,500 of employer National Insurance is covered, which makes a £12,570 salary even more clearly worthwhile.
- If you already use your personal allowance elsewhere, for example through a job or a pension, a lower salary may suit you better.
- If the company has made a loss, or has very little profit, there may be no corporation tax saving to set against the National Insurance.
Taking the rest as dividends
Dividends are paid out of profits after corporation tax, so the company must have enough retained profit to cover them. Each one needs a board decision and a dividend voucher, and paying more than the company can afford can cause problems later.
With a £12,570 salary using your personal allowance, dividends up to the top of the basic rate band are taxed at 10.75% after the first £500. For example, a director taking a £12,570 salary and £37,700 of dividends (£50,270 in total) pays dividend tax of £3,999: £37,200 at 10.75%. Dividends that take your total income above £50,270 are taxed at 35.75%.
If your dividends are more than the £500 allowance, you'll usually need to file a Self Assessment return, and you may have to make payments on account towards the following year's bill.
How we handle it
On our company packages, director payroll is included, and your salary and dividends are tracked as they're paid. Because your company's profits are kept up to date, you can ask us at any point what's available to pay as dividends and how it affects your personal tax. Your Self Assessment return is then prepared from figures we already hold.
Questions people ask
What is the best director's salary for 2026/27?
For most one-director companies paying corporation tax, £12,570 a year (£1,047.50 a month). It's free of income tax and employee National Insurance, and the employer National Insurance it costs is outweighed by the corporation tax it saves.
What are the dividend tax rates for 2026/27?
10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band, after a £500 tax-free dividend allowance.
Can I claim the Employment Allowance as a sole director?
No. A company whose only employee paid above the secondary threshold is a director can't claim it.
Should I pay myself more salary instead of dividends?
Usually not above £12,570. Salary above that attracts income tax, employee National Insurance and employer National Insurance, which together cost more than corporation tax and dividend tax in most cases.
This guide is general information, not advice for your situation. Tax rules change and the right answer depends on your circumstances, so speak to us (or another qualified adviser) before acting on it.