Salary or dividends: paying yourself from your company in 2026/27
Dividend tax rates rose in April 2026. We look at how the usual small salary plus dividends approach is affected and what to check this year.
Most owner-managed companies pay their directors a small salary topped up with dividends. The approach still works, but the balance has shifted, and it is worth revisiting the numbers each year.
The salary
A salary is an allowable expense for corporation tax and, if it is at least the lower earnings limit, protects your State Pension record. Many directors set it at or around the personal allowance of £12,570, where no income tax is due. Employer National Insurance now starts at £5,000 of salary, so a company with a single director (who cannot claim the Employment Allowance) will pay some employer’s NI on a salary at that level. We compare the saving in corporation tax against the NI cost to find the best level for each client.
The dividends
Dividends are paid from profits after corporation tax and are not deductible for the company. From April 2026 the dividend tax rates are:
| Band | Dividend rate from 6 April 2026 |
|---|---|
| Dividend allowance (first £500) | 0% |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
The two percentage point rise at basic and higher rate narrows the advantage of dividends over salary, but for most directors dividends remain the cheaper way to take profit above a modest salary, particularly where the company pays corporation tax at the 19% small profits rate.
Things to check this year
- Is there enough distributable profit? Dividends can only be paid from retained profit after tax. Paying more than that is unlawful and can be reclaimed if the company later fails.
- Is the paperwork in place? Each dividend needs a board minute and a dividend voucher.
- Are you using your spouse’s allowances? Where a spouse or partner genuinely holds shares, their basic rate band and dividend allowance may be available.
- Pension contributions. Employer pension contributions remain one of the most tax-efficient ways to extract value from a company.
Every director’s position is different. We review the salary and dividend mix for each client company at the start of the tax year, and we are happy to do the same for you.
This article is a general guide based on the rules as we understand them at the date of publication. It is not advice for your specific circumstances. Please speak to us before acting on anything in it.
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Tell us a little about your business and we will come back to you within one working day with how we can help and what it will cost. Or speak directly to Craig, our senior partner, on 07949 534119.