How founders should pay themselves in 2026/27

Salary is deductible for the company and creates a National Insurance record for you. Dividends can only be paid out of distributable profits, carry no National Insurance, and are taxed at 10.75%, 35.75% and 39.35% by band with a £500 dividend allowance.

Employer National Insurance is 15% above a £5,000 secondary threshold, and the Employment Allowance of up to £10,500 is unavailable where a single director is the only employee. Those two facts drive most director salary decisions.

The common pattern is a modest salary around the National Insurance thresholds to secure a qualifying year, with the balance taken as dividends when profits allow. The optimum depends on your other income, whether the Employment Allowance is available, and what you need personally.

Dividends require distributable reserves and proper board minutes and vouchers. Paying dividends out of a loss-making company creates an illegal distribution and, in practice, a director's loan.

Investor-backed founders often take a full market-rate salary through PAYE, because there are no distributable profits to pay dividends from and investors expect founders to be paid properly rather than living on savings.

That is a legitimate and usually expected use of raised capital, within the budget the board approved.

An overdrawn director's loan not repaid within nine months and one day of the year end triggers a section 455 charge, and a balance over £10,000 creates a benefit in kind unless interest is paid at the official rate. Loan accounts are also a routine diligence finding.

Founder equity should be issued early at nominal value. Issuing shares to yourself or a co-founder once the company has value creates an income tax charge on the difference, one of the most avoidable bills in UK startup finance.