Salary vs dividends for limited company directors in 2026/27

From 6 April 2026, the dividend ordinary rate is 10.75%, up from 8.75%, and the higher rate is 35.75%, up from 33.75%. The additional rate remains 39.35%. The dividend allowance remains £500; dividends covered by it still use tax bands, so it is not an extra band of untaxed income.

Corporation Tax applies before profits are paid as dividends: the small profits rate is 19%, the main rate is 25%, and marginal relief can apply between the relevant limits. The usual £50,000 and £250,000 limits are reduced for associated companies and short accounting periods. Salary and qualifying employer costs are generally deductible before Corporation Tax; dividends are not.

There is no universal magic salary. A common approach is a modest PAYE salary considered against the personal allowance and National Insurance thresholds, followed by dividends from available distributable profits. Your other income, company profits, pension plans and eligibility for Employment Allowance can change the best mix.

Salary is employment income subject to PAYE and can attract employee and employer National Insurance. Dividends do not attract National Insurance, but they come from profits left after Corporation Tax and can attract personal dividend tax. Compare the company’s total cost and your net income together, not just the headline dividend rate.

Pay dividends only from sufficient distributable profits supported by appropriate accounts. Cash in the bank alone does not prove that a dividend is lawful. Keep board minutes and dividend vouchers and follow the rights attached to each share class.

Do not treat the company as a personal bank account. Money drawn without a valid salary, dividend, expense repayment or other proper basis can create an overdrawn director’s loan. Section 455 tax is 35.75% for relevant loans made on or after 6 April 2026, compared with 33.75% for loans made from 6 April 2022 to 5 April 2026, if they remain outstanding nine months and one day after the accounting period ends.

Section 455 is a company tax charge, separate from possible benefit-in-kind consequences for the director. Repayment, release or write-off can have different tax effects, and anti-avoidance rules can apply to temporary repayments and re-borrowing. Take advice before moving money simply to clear a year-end balance.

LimitedCompany.Accountants can model salary versus dividends for your company. Get a quote at https://limitedcompany.accountants or book technical advice, which is paid, at http://accotax.co.uk/ws. A general first call about our services is free. Contact us: 12 London Road, Morden, London SM4 5BQ · 020 3441 1258 · hello@limitedcompany.accountants.

This is general guidance, not personal tax or financial advice.

Rates, thresholds and deadlines quoted here reflect the 2026/27 UK tax year. Check current GOV.UK guidance, or ask us, before relying on them for your own company.