The short answer
most UK company directors pay themselves a small salary through payroll and take the rest of their income as dividends. They can also receive tax-free expenses, employer pension contributions and, within limits, a director’s loan. Each route is taxed differently, so the best mix depends on your profit, other income and goals.
Checked 26 October 2026. Rates for 2026/27.Key takeaways
- Salary is a deductible expense for the company and is taxed as employment income for you.
- Dividends come from post-tax profit and are taxed personally above the £500 allowance.
- Many directors take a salary near the £12,570 personal allowance, then dividends.
- Employer pension contributions are generally a tax-efficient extra.
- Never just move money to your personal account without recording it correctly.
The four ways a director can take money
1. Salary
Salary goes through payroll with PAYE. The company registers as an employer, submits Real Time Information reports to HMRC and issues payslips. Salary is a deductible expense when working out Corporation Tax. For 2026/27 the employer National Insurance secondary threshold is £5,000 and the rate is 15%. A salary at or above the lower earnings limit builds a qualifying year for your State Pension, even if it falls below the personal allowance. Learn more on payroll for limited companies.
2. Dividends
A dividend is a share of the company’s post-tax profit paid to shareholders. You can only pay dividends from distributable profits, meaning retained earnings after tax. Each dividend needs board minutes and a dividend voucher. For 2026/27, after the £500 dividend allowance, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. There is no National Insurance on dividends. See how to pay dividends correctly.
3. Expenses and benefits
Business expenses are not income. If you buy equipment, travel for business or work from home in line with HMRC rules, the company can reimburse or pay them. Claim mileage at 45p a mile for the first 10,000 business miles and 25p after that. Anything personal needs to be treated differently. Our allowable expenses guide explains the rules.
4. Pension contributions and loans
The company can pay employer pension contributions, which are usually deductible if wholly and exclusively for the business. They are limited by the annual allowance. A director’s loan lets you borrow from the company, but if it is still outstanding nine months and a day after the year end, a 35.75% charge on the balance may apply. See what happens if your director’s loan account is overdrawn.
Why a small salary plus dividends is common
A salary of around £12,570 uses your personal allowance, is deductible for the company and does not cost much in tax. Anything above £5,000 triggers employer National Insurance, but many directors still pay themselves above that figure because the salary is deductible at 19% or 25% and creates a State Pension qualifying year. Dividends then top up your income, with the first £500 free of dividend tax and the next slice in the 10.75% band. The best salary varies if you have other income, claim the Employment Allowance, or are close to a tax threshold, so run the figures each year. Try the salary vs dividend calculator.
A worked example: £60,000 profit before director pay
- Salary: £12,570. Employer NI at 15% on £7,570 = £1,135.50.
- Profit before Corporation Tax: £60,000 − £12,570 − £1,135.50 = £46,294.50.
- Corporation Tax at 19%: £8,796.96. Profit after tax: £37,497.54.
- Dividend of £37,497.54: first £500 tax-free, the remaining £36,997.54 taxed at 10.75% = £3,977.24 (this sits inside the basic rate band because salary plus dividends is under £50,270).
- Total take-home: £12,570 + £37,497.54 − £3,977.24 = £46,090.30.
The same £60,000 as employment income would leave less after tax and employee National Insurance, but a company has extra costs and rules. These numbers are illustrative and will change if rates change.
Keeping the paperwork right
- Run payroll each month or at the frequency you choose and file RTI on or before payday.
- Check there are enough profits before declaring a dividend.
- Record board minutes and issue a dividend voucher for each payment.
- Reconcile your director’s loan account every month.
- Declare dividends and salary on your Self Assessment return where required, by 31 January following the tax year.
Common mistakes to avoid
- Paying dividends without profits. Illegal dividends can be reclaimed and the amounts treated as loans.
- Treating the company’s money as your own. Personal spending must be recorded as a loan, dividend or salary.
- Forgetting tax on account. Dividend tax is paid through Self Assessment, so set cash aside.
- Taking too little salary. You may lose a State Pension qualifying year.
- Ignoring the personal allowance taper. Income above £100,000 reduces your allowance.
Pay planning in Scotland, Wales and Northern Ireland
Dividend tax and Corporation Tax follow UK rules everywhere. Scottish taxpayers pay Scottish Income Tax rates on salary, which have more bands than England, so salary planning can differ. Welsh rates currently match England. We model your pay mix using the right rates for where you live.
Planning your pay across the tax year
Instead of deciding pay at the last minute, set a simple plan at the start of the year. Estimate the company’s profit, decide on a regular monthly salary, and agree how much you want to draw as dividends. Review the plan each quarter with your management accounts. If profits come in higher than expected, you can declare a larger dividend before year end. If they are lower, you can reduce or skip a dividend without breaking any rules. Regular dividends also help you budget, but remember that each one needs enough profit behind it on the day it is paid.
What if you have other income?
Other income changes the best mix. If you have a part-time job or rental income, your personal allowance may already be used, so a company salary may be less valuable and dividends may fall into a higher tax band sooner. If you are close to £100,000 of total income, the personal allowance tapers away, creating an effective 60% rate on the slice between £100,000 and £125,140. Pension contributions can pull income back below the threshold. Ask an accountant to model your whole position rather than just the company.
Saving for your tax bill
The company pays Corporation Tax, but you personally pay dividend tax through Self Assessment, usually due on 31 January after the end of the tax year, with a second payment on account in some cases. Many directors set aside a fixed percentage of every dividend in a separate savings account so the January bill is never a surprise. A simple rule is to hold back about 10% to 11% of basic-rate dividends and more if you pay higher rate. Your accountant can tell you the exact figure after your return is prepared.
The bottom line
Most directors combine a small salary with dividends paid from post-tax profit. Only pay dividends the company can lawfully distribute, keep the paperwork up to date, and review the mix every tax year.
Frequently asked questions
What is the best way to pay myself from a limited company?
Most directors take a small salary, often around the £12,570 personal allowance, and the rest as dividends. The best split depends on your profit and other income.
Can I pay myself dividends every month?
Yes, as long as the company has enough distributable profit and you record each dividend properly.
Do I pay National Insurance on dividends?
No. Dividends are not subject to National Insurance, but dividend tax applies above the £500 allowance.
How much salary should a director take?
Many take around £12,570. Employer NI starts above £5,000, so some choose a lower figure. Use a calculator or ask an accountant.
Can my limited company pay my personal bills?
Not as an expense. Personal payments are treated as a director's loan or as dividends or salary.
This article is general information, not personal tax or financial advice. Rules and rates change, so check GOV.UK or speak to an accountant about your circumstances. Rates shown are for 2026/27, last checked November 2026.