One of the most common questions we get from new company directors is: how should I pay myself? The answer involves a combination of salary and dividends — and getting it right can save thousands of pounds in tax each year.
Salary vs Dividends: The Basics
Most company directors pay themselves a low salary — typically at the National Insurance Lower Earnings Limit or Primary Threshold — and top up their income with dividends. This is more tax-efficient than drawing a full salary because dividends are taxed at lower rates and aren’t subject to National Insurance.
💡 Key takeaway
HMRC’s current penalty regime charges automatic interest daily on unpaid tax — a £5,000 bill left 90 days late accrues around £100 in interest charges.
The Optimal Salary for 2026/27
For 2026/27, many accountants recommend a salary of around £12,570 (the personal allowance) if you have no other income, or £6,396 (the Secondary Threshold) to avoid employer’s NI. Your bookkeeper or accountant will calculate the optimal amount for your situation.
Dividend Tax Rates
Dividends are paid from company profits after corporation tax. The dividend allowance for 2026/27 is £500. Above this, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate) or 39.35% (additional rate) — all lower than equivalent salary rates.
Director’s Loan Account
If you take money from the company that isn’t salary or dividend, it goes through a Director’s Loan Account. This can have tax implications if the loan exceeds £10,000 or isn’t repaid within 9 months of the company’s year end.
Why Proper Records Matter
Accurately recording salary payments, dividend declarations and loan account movements is essential for compliance. This is where a professional bookkeeper becomes invaluable — ensuring your payroll, dividend vouchers and accounts are all properly maintained.
Frequently Asked Questions
Can I pay myself any amount as a director?
You can — but tax efficiency depends on how you structure it. The right combination of salary and dividends depends on your total income, tax rates and company profitability.
Do I need payroll software to pay myself a salary?
Yes — HMRC requires RTI payroll submissions even for a single-director company. Your bookkeeper will manage this for you.
How often can I pay dividends?
Dividends can be paid at any time as long as the company has sufficient retained profits. Many directors pay quarterly or monthly.
