For limited company directors — find the most tax-efficient way to pay yourself
Company directors who own shares can choose how to extract money from their business — as salary, dividends, or a mix. Each is taxed differently:
A director wants to extract £50,000 from their company, paying a £12,570 salary (equal to the Personal Allowance) and the remainder as dividends:
| Salary | £12,570.00 |
| Income tax on salary | £0.00 (within Personal Allowance) |
| Employee NI on salary | £0.00 (below primary threshold) |
| Dividends | £37,430.00 |
| Dividend allowance | −£500.00 |
| Taxable dividends | £36,930.00 |
| Dividend tax (8.75% basic rate) | £3,231.00 |
| Total personal tax | £3,231.00 |
| Take-home (salary + dividends − tax) | £46,769.00 |
A common approach is to pay a salary of £12,570 (the Personal Allowance) — this uses up your tax-free allowance, may qualify for state pension credits, and keeps National Insurance low, since NI is calculated separately from dividends.
The first £500 of dividends is tax-free. Above that, dividend tax is 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate — significantly lower than equivalent salary once combined tax and NI are considered.
Not usually. A small salary (even below the NI threshold) is still a deductible business expense reducing Corporation Tax, and may help you build qualifying years for the State Pension. Pure dividend-only strategies miss out on this.
Yes — dividends are added on top of your other income to determine which tax band they fall into, even though they are taxed at separate dividend rates.
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Results are estimates based on 2026/27 HMRC rates and are intended as a guide only. They do not constitute financial or tax advice. Always verify with HMRC or a qualified accountant for your specific circumstances.