The best way to pay yourself from a ltd company in 2026/27

When you run your own limited company, you’re the boss so you call the shots! You even get to decide how you pay yourself. 

But here’s what you don’t often get told: how you take money out of your company matters. Do it one way, and you could end up handing over more money to HMRC than you need to. Do it the smart way, and you keep more of what you’ve earned.

We’re here to walk you through the most tax–efficient approach for the 2026/2027 tax year. Ready to make some savings? Let’s do it. 

Key takeaways:

• Most limited company directors pay themselves a combination of salary and dividends
• A salary of £12,570 sits within your personal allowance, so you pay no income tax or employee NI on it
• Dividends are taxed at lower rates than salary and aren’t subject to National Insurance
• In 2026/2027, dividend tax rates went up by 2%. If you haven’t already, it’s worth reviewing your setup 

As the owner–director of your own limited company, you’ve got a few ways to get paid. And you don’t just have to pick just one. In fact, most people use a combination of ways to stay tax–efficient.

Let’s look at these options in more detail now:

• Director’s salary: this is a regular salary paid through your company’s PAYE, just like any other employee
• Dividends: these are payments made from your company’s after–tax profits to shareholders (which is most likely just you at this point)
• Director’s loan: this is when you borrow money from your company to pay back later. It’s a bit more complex and has specific rules, so it’s best to chat with an accountant before going down this route. Learn more about director’s loans

For most small limited company directors, the salary + dividends combination is usually the winner. 

For that reason, this is the combination we’ll focus on in this article.

Even if you’re a team of one, you can still put yourself on payroll. This means your salary is a legitimate business expense, which helps to reduce your company’s corporation tax bill. It also means that you’ll need to set up your company payroll if you haven’t already. 

The concept behind this method is simple: Less profit = less corporation tax

That’s definitely already a win.

Your salary is subject to two types of tax: 

• National Insurance (NI) 
• Income tax

Here’s what the key thresholds look like for 2026/2027:

Employee National Insurance (what you pay):

• 0% on earnings up to £12,570 per year (this is known as the primary threshold)
• 8% on earnings between £12,570 and £50,270
• 2% on earnings above £50,270

Employer National Insurance (what the company pays on top):

• 0% on earnings up to £5,000 per year (this is known as the secondary threshold)
• 15% on earnings above £5,000

Income tax:

• 0% on the first £12,570 (your personal allowance)
• 20% on earnings between £12,570 and £50,270 (basic rate)
• 40% on earnings between £50,270 and £125,140 (higher rate)
• 45% on earnings above £125,140 (additional rate)

Let’s look at a real–world example: imagine you paid yourself a salary of £30,000 per year. You’d pay income tax and NI on the amount above £12,570. Your company would also pay employer NI at 15% on the amount above £5,000.

The Employment Allowance is a relief that lets eligible businesses reduce their annual employer NI bill by up to £10,500. However, if you’re the only director and the only employee in your company, you can’t claim it. It only kicks in when you have at least one other person on the payroll.

If you’re planning to bring on even a part–time member of staff, the Employment Allowance can make a meaningful difference to your tax bill, so it’s worth remembering.

Good question. This is where it gets interesting. 

As a company director, you’re classed as an office holder. This means the National Minimum Wage rules don’t apply to you. This gives you the freedom to choose a salary that fits your tax strategy. Legally, you can pay yourself a very low salary, or even nothing at all, if you prefer. 

Let’s look at the pros and cons of taking home a lower salary — or a higher salary. 

Low salary

Pros:

• Zero personal tax: if you keep your salary at or below your personal allowance of £12,570, you won’t pay any income tax or employee National Insurance
• Lower business costs: keeping the salary low reduces the amount of employer National Insurance the company has to pay
• Room for dividends: you leave more post–tax profit in the company bank account, which can then be paid out as dividends

Cons:

• Lower benefit limits: some state benefits, like maternity pay, are calculated based on your salary. If your salary is very low, your entitlement might be lower too
• Pension contribution caps: you can only get tax relief on personal pension contributions up to 100% of relevant UK earnings (which is your salary). If you only pay yourself £12,000, that’s the most you can personally put into your pension with tax relief

Higher salary

Pros:

• Easier borrowing: if you are applying for a mortgage or a big personal loan, lenders may prefer to see a steady, high salary on your payslips
• Bigger corporation tax savings: because your salary is a business expense, a higher salary reduces your company’s taxable profit. This means your company pays less corporation tax at the end of the year
• Maximum pension power: A higher salary allows you to make much larger personal contributions to your pension while still receiving tax relief

Cons:

• The personal allowance cap: once you go above £12,570, you start paying 20% income tax and 8% National Insurance
• Expensive for the company: Your business has to pay 15% employer NI on everything over £5,000, which adds up quickly

For most solo directors in 2026/2027, paying yourself a salary of £12,570 is the most tax–efficient option. It’s high enough to use your full tax–free allowance but low enough to avoid personal tax and employee NI. However, if a new home or a large pension pot is on your 2026 bingo card, the higher salary route might be worth the extra tax.

Tip: Some company directors set their salary at the lower earnings limit, which is currently £6,708 per year. This helps to protect your state pension entitlement while avoiding employer NI. As always, it’s worth weighing up what works best for your situation.

Dividends are payments made to shareholders out of a company’s profits after corporation tax has been paid.

Dividends aren’t subject to NI. This is one of the main reasons they’re so attractive (and useful) to director–shareholders. And because they come from post–tax profits, there’s no corporation tax deduction to worry about on the dividend itself.

Did you know you can pay yourself dividends at any point during the year? As long as your company has enough profit to cover them, you can pay out what you like, when you like. 

That’s definitely another win.

Dividends have their own set of tax rates and in April 2026 these rates increased by 2% for basic and higher rate taxpayers:

• Dividend allowance: The first £500 of your dividends are tax–free
• Basic rate: 10.75% on dividends (up from 8.75%)
• Higher rate: 35.75% on dividends (up from 33.75%)

So, you can receive up to £500 in dividends completely tax–free. Granted, this isn’t a huge amount. For context, it used to be £5,000 back in 2017. But it’s still worth using.

While there’s no denying that dividends are still very tax–efficient compared to taking home a higher salary, it’s a good idea to review your plans and see if they truly work for you.

Right, let’s get to the main point of today’s TED talk.

For most director–shareholders of small limited companies, the most tax–efficient approach is a combination of a low salary and dividends.

What does this look like in 2026/2027?

• Step 1: pay yourself a salary of £12,570

You pay £0 income tax and £0 employee NI. Your company pays roughly £1,135.50 in employer NI (15% on the amount over £5,000)

• Step 2: take the rest as dividends

Remember, the first £500 of dividends is tax–free. Everything above that is taxed at 10.75% as long as your total income stays below £50,270

You’ll get a clearer idea of how tax–efficient this approach is when comparing it to the all-salary approach. Let’s look at that now. 

Example: imagine you take home a salary of £50,270

Option A: all salary

• Option A (all salary): if you took £50,270 all as salary, the total tax and NI (for you and the company) would be roughly £17,400
• Option B (salary + dividends): using the method above, the total tax and NI drops to roughly £5,180

The difference between the two is around £12,000. Enough for a very nice holiday!

This gives you a pretty compelling reason to think carefully about how you structure your pay.

Tip: For peace of mind or extra clarity on your individual financial circumstances, it’s a good idea to chat with an accountant to make sure this approach is best for you and your company.

Once you know how you want to pay yourself, you’ll want to make sure your finances are set up to handle it as smoothly as possible. 

A dedicated business current account that’s designed for small business owners makes it much easier to track your income and separate your business money from your personal money.

If you’re still in the process of setting up your company registration, we can help you get ready to trade within 24 hours.  

For more small business finance guides, insights and tips, check out our resource hub. From tax to accounting, we’ve got you covered.  

You must first ensure your company has enough profit after tax to cover the payment. You then hold a directors’ meeting (even if it’s just you) to declare the dividend, record it in your meeting minutes, and issue a dividend voucher.

Yes — but it counts as a benefit in kind, which means it’s treated as taxable income for you personally and you’ll pay income tax on it. Your company will also pay Class 1A NI (currently 15%) on the value of the benefit. 

No. Companies limited by guarantee don’t have shares — which means they don’t have shareholders either. Dividends are only payable to shareholders, so a company limited by guarantee can’t distribute profits in this way.