Salary vs Dividends: The Director's Split for 2026/27
Quick answer
Most one-person companies pay a small salary up to the GBP 12,570 Personal Allowance, then take the rest as dividends. Salary is deductible against Corporation Tax; dividends are paid from post-tax profit but carry no National Insurance. After the Nov 2025 Budget raised dividend rates, the dividend advantage has narrowed but usually still wins.
Salary vs dividends: the key figures (2026/27)
| Item | Figure |
|---|---|
| Personal Allowance | GBP 12,570 - the usual salary level for a director |
| Dividend allowance | GBP 500 tax-free, on top of the Personal Allowance |
| Dividend rate (basic band) | 10.75% (up from 8.75% before the Nov 2025 Budget) |
| Dividend rate (higher band) | 35.75% (up from 33.75%) |
| Dividend rate (additional band) | 39.35% |
| Employee NIC | 8% on salary from GBP 12,570 to GBP 50,270, then 2% |
| Employer NIC | 15% on salary above the GBP 5,000 Secondary Threshold |
| Employment Allowance | GBP 10,500, but a company whose only paid employee is a single director cannot claim it |
| Corporation Tax | Salary is a deductible cost; dividends are paid from profit after Corporation Tax |
| 60% trap | Personal Allowance tapers GBP 1 for every GBP 2 of income over GBP 100,000, gone at GBP 125,140 |
For a director of their own limited company, "how do I pay myself" comes down to the split between salary and dividends. The standard move is a salary up to the GBP 12,570 Personal Allowance, then dividends for the rest. Salary is a deductible cost that lowers your Corporation Tax bill and protects your State Pension record; dividends carry no National Insurance but are paid out of profit that has already been taxed. The table above is the detail at a glance.
The twist for 2026/27 is that the dividend advantage has narrowed. The November 2025 Budget pushed the basic and higher dividend rates up by two points to 10.75% and 35.75%, and since April 2025 employer National Insurance is 15% on salary above just GBP 5,000. The "just take dividends" rule of thumb still usually wins, but by less than it used to, and for a single-director company that cannot claim the GBP 10,500 Employment Allowance the small salary now triggers a little employer National Insurance.
A worked example on GBP 50,000 of company profit makes it concrete. Route one is a GBP 12,570 salary plus dividends: employer National Insurance of about GBP 1,136, Corporation Tax at 19% on what is left, then roughly GBP 29,400 of dividends taxed mostly at 10.75%, netting around GBP 38,900 in your pocket. Route two extracts the whole GBP 50,000 as salary: after employer and employee National Insurance and Income Tax you keep around GBP 35,300. The dividend-led split is roughly GBP 3,600 ahead here, a real gap but a smaller one than under the old rates. Run your own figures with the dividend tax calculator.
For the full rate tables and how dividends stack on top of other income, see the dividend tax guide, and for the tax your dividends are paid after, the Corporation Tax guide. If you are still deciding whether to incorporate at all, weigh it up in limited company vs sole trader.
Figures are for the 2026/27 tax year and are taken from gov.uk; tax rules and thresholds can change. This is general information, not financial or tax advice.
Frequently asked questions
Can you just pay yourself dividends instead of a salary?
You can, but most directors take a small salary first. A salary at or near the GBP 12,570 Personal Allowance is a deductible business cost that cuts Corporation Tax and helps keep your National Insurance record qualifying for the State Pension. Dividends do neither, so dividends-only is rarely the best split.
Are dividends taxed differently than salary?
Yes. Salary is taxed at 20/40/45% with employee National Insurance and employer National Insurance on top. Dividends carry no National Insurance and have their own lower rates (10.75/35.75/39.35% in 2026/27), but they are paid from profit that has already been hit by Corporation Tax. The honest comparison counts both taxes.
Are dividends or salary taxed first?
Salary and other non-dividend income are taxed first and use up your Personal Allowance and tax bands. Dividends sit on top and are taxed at the dividend rate for whichever band they fall into. So a small salary plus dividends keeps more of those dividends inside the basic-rate band.
What is the 60% trap?
Between GBP 100,000 and GBP 125,140 of income your Personal Allowance is withdrawn by GBP 1 for every GBP 2 you earn. That clawback means each extra pound in this band is taxed at an effective 60% (higher still on dividends). Directors near GBP 100,000 often hold dividends back or pay into a pension to stay under it.
Is it better to take salary or dividends?
For most one-person companies a small salary up to the Personal Allowance plus dividends still nets the most after Corporation Tax, Income Tax and National Insurance. But the Nov 2025 dividend rate rise and the 15% employer National Insurance from GBP 5,000 have narrowed the gap, so it is now a real calculation rather than an automatic win for dividends.
Sources
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General information, not financial advice. Tax rules and figures can change; check the current position on gov.uk before acting.