Salary vs Dividends: The Tax-Efficient
Way to Pay Yourself in 2026/27
If you run a limited company, how you pay yourself matters.
Here is how salary and dividends stack up this year.
By Tom Fisher, Client Manager
Most director-shareholders pay themselves with a mix of a small salary and dividends. The balance shifted again in April 2026, so it is worth a fresh look.
The building blocks
Everyone has a personal allowance of £12,570 of tax-free income. A small salary is usually efficient because it is a deductible cost for the company and can protect your state pension record. Employer National Insurance now begins at just £5,000 (the secondary threshold) at 15%, while employee National Insurance starts at £12,570.
Dividends in 2026/27
The tax-free dividend allowance is now just £500. Above that, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate). The basic and higher rates both rose in April 2026, so dividends are a little more expensive than they used to be, but they still carry no National Insurance, which is what makes the mix efficient.
The usual approach
A modest salary, topped up with dividends from post-tax profit. Remember dividends can only be paid from real retained profit, and the company pays corporation tax (19% to 25%) first, so it is the combination that matters, not dividends on their own.
This is general information, not personal advice. The optimal split depends on your other income, whether your company can claim the Employment Allowance, and your profit level.
We work out the most efficient, legitimate mix for your company and keep it under review as the rules change.
