What is the most tax-efficient salary and dividend split for 2026/27?

For 2026/27, a sole director without Employment Allowance typically takes a £5,000 salary, avoiding employer NIC, then draws the rest as dividends. Where Employment Allowance applies, £12,570 salary plus dividends usually wins because employer NIC is absorbed by the allowance.

The £5,000 secondary threshold is the point above which employer NIC at 15% starts to apply, so a sole director with no other employees and no Employment Allowance usually stops there to avoid triggering it, while still gaining a qualifying year towards the state pension if the salary reaches the lower earnings limit.

Where the company has Employment Allowance because it employs someone else above the threshold too, salary can rise to £12,570, the personal allowance, without extra NIC cost, since the allowance covers the employer NIC on the difference and the whole amount is deductible from company profit.

After salary, dividends up to the £500 dividend allowance are tax free, and the remaining unused personal allowance shelters further dividends before tax applies. Beyond that, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above the additional rate threshold.

The right overall split depends on total profit available to extract, any other personal income, and whether the mortgage, pension annual allowance or state pension record considerations favour a higher salary despite the marginal NIC cost, so the calculation needs running on your own figures rather than applied as a fixed rule.

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.