Directors, salary & dividends
A low salary plus dividends is usually the most efficient mix for owner-directors. How the rates compare, where the crossover sits and when salary wins.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityFor most owner-directors a small salary plus dividends wins. Salary is deductible from company profit but carries National Insurance; dividends carry no NIC but are paid from post-tax profit. The efficient mix is a salary to a threshold, then dividends.
Comparing the two on the same pound
When salary is the right answer
For most owner-directors a small salary plus dividends wins. Salary is deductible from company profit but carries National Insurance; dividends carry no NIC but are paid from post-tax profit. The efficient mix is a salary to a threshold, then dividends.
A pound of salary escapes corporation tax but attracts employer NIC at 15%, employee NIC at 8% within the main band, and income tax at your rate. A pound of dividend suffers corporation tax at 19% to 25% first, then dividend tax at 10.75%, 35.75% or 39.35% depending on your band.
At basic rate the dividend route is normally cheaper overall. At higher rate the gap narrows and, for a company in the 26.5% marginal band, salary or an employer pension contribution can be competitive because the corporation tax deduction is worth more.
Salary wins where you need earnings for a mortgage application, want maximum pension annual allowance headroom based on relevant earnings, need the qualifying year for the state pension, or where the company has losses and dividends cannot legally be paid.
Dividends also require distributable reserves. A company with no retained profit cannot pay them at all, so a loss-making year forces salary or nothing.
Rates, thresholds and deadlines quoted here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.
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Frequently asked
Yes, as long as reserves support each one and you document it. Regular fixed amounts that look like wages invite challenge.
Yes. Both feed into adjusted net income, so the high income child benefit charge and the £100,000 allowance taper apply.
A bonus is salary, deductible for the company but with full NIC. It is usually used to manage profit at the year end rather than as routine pay.
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No. This page explains general UK rules and common accounting treatment. Your facts, contracts and wider tax position must be reviewed before you rely on a conclusion.
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