Salary or Dividends in 2026/27: The Best Mix for a UK Limited Company Director

For years the standard advice for a one-person limited company was simple: a small salary plus dividends. The logic still holds, because dividends carry no National Insurance. But two changes have shifted the details. Employer NI rose to 15% above a lower £5,000 threshold in April 2025, and from 6 April 2026 dividend tax went up by 2 points in the basic and higher bands, to 10.75% and 35.75%.

How money gets from the company to you

1. Salary is paid first. The company pays employer NI on it above £5,000; you pay employee NI above £12,570 and income tax above your personal allowance.
2. Salary and employer NI are deductible, so corporation tax is charged on what's left: 19% up to £50,000 of profit, 25% above £250,000, with marginal relief between.
3. The rest is paid as dividends. The first £500 is tax-free; the rest is taxed at 10.75%, 35.75% or 39.35% depending on the band it lands in, stacked on top of your salary.

£100,000 of profit, three salary choices

With a £12,570 salary, take-home comes to about £65,210. A £5,000 salary, which avoids employer NI entirely, gives about £64,457. A £50,270 salary, filling the basic-rate band with salary, gives about £62,240.

The £12,570 salary wins even though it costs £1,135.50 of employer NI, because the salary and that NI both reduce corporation tax. For a company where the director is the only employee, which can't claim the £10,500 Employment Allowance, that is the usual result at this level of profit.

When the answer changes

• If the company has other employees and can claim the Employment Allowance, the employer NI on a director's salary is often covered, which makes a higher salary cheaper.
• If you have other income, such as a job or rental income, it uses up your personal allowance and bands first, and the best salary may be lower.
• Above £100,000 of total income your personal allowance tapers away, creating an effective 60% band that's worth planning around, often with pension contributions.
• Employer pension contributions are deductible for the company and free of NI, and are often more efficient than extra salary or dividends.

How much the dividend rise costs

Every pound of dividends taxed in the basic or higher band now costs 2p more than in 2025/26. On the example above, with about £67,000 of dividends, that's roughly £1,330 more tax a year. Dividends in the additional-rate band are unchanged at 39.35%.

Tip: Run your own profit through the calculator before the end of the tax year on 5 April 2027. Dividends are taxed in the year they're paid, so timing can move income between tax years.