The most tax-efficient strategy for limited company directors in 2026/27 is to pay a salary of £12,570 (the personal allowance threshold) and take the rest as dividends. This minimises your combined income tax, National Insurance and corporation tax bill.
Why £12,570 salary? At this level you pay zero income tax (covered by personal allowance), zero employee NI (below the NI threshold), and your company gets a corporation tax deduction. Your company does pay employer NI of around £552 on the amount above the secondary threshold, but this is offset by the corporation tax saving.
For example, if your company profits are £60,000 before your salary: you take £12,570 salary, leaving £47,430 in the company. Corporation tax at roughly 19-25% (depending on total profits) is paid on the remaining profit. You then take dividends from the after-tax profit.
Dividend tax rates for 2025/26 are 8.75% for basic rate, 33.75% for higher rate and 39.35% for additional rate. You also get a £500 dividend allowance.
Taking £50,000 total (£12,570 salary plus £37,430 dividends): your total personal tax would be approximately £2,400 on dividends, plus zero on salary. Compare this to taking the full £50,000 as salary, where you would pay approximately £7,486 in income tax and £2,994 in NI — a total of £10,480. The dividend route saves you over £8,000 per year.
However, dividends do not count as pension-qualifying earnings and do not build up your state pension record. You should ensure your salary is at least at the lower earnings limit (£6,396) to maintain your state pension entitlement.
Use our dividend tax calculator and take-home pay calculator to model different scenarios for your situation.