Salary vs dividends for UK company directors in 2026/27

If you own and run a small UK limited company, you can pay yourself a salary, dividends, or both. The mix changes how much tax you and the company pay. This guide uses the rates for the tax year that started on 6 April 2026. It shows the usual approach and why it works, but it is not personal tax advice: your other income changes the answer.

Why is there a choice at all?

A salary is an expense of the company. It reduces the company's taxable profit, so it saves Corporation Tax, but salary over certain thresholds carries employer and employee National Insurance. A dividend is a share of profit paid after Corporation Tax. It carries no National Insurance, but it is taxed at dividend rates in your hands.

What are the 2026/27 rates?

The basic and higher dividend rates each rose two points on 6 April 2026. Employer National Insurance went to 15% with a £5,000 threshold in April 2025.

What salary do most directors take?

For a company where the director is the only employee, the common choice is a salary of £12,570.

At that level there is no Income Tax and no employee National Insurance. The company pays employer National Insurance on the part above £5,000, which is £7,570 × 15% = £1,135.50. Both the salary and that NI are deductible, so at a 19% Corporation Tax rate they save about £2,604 of Corporation Tax. The net effect is positive, and a salary over the lower earnings limit also counts towards your State Pension.

Some directors take a salary of £5,000 instead, avoiding employer NI entirely. Others, in companies with a second employee that qualify for the Employment Allowance, take more. A company where the director is the only person paid a salary cannot claim the Employment Allowance.

How are dividends taxed on top?

Your salary uses your personal allowance, so dividends are taxed from the first pound after the £500 dividend allowance. Dividends inside the basic-rate band (up to £50,270 of total income) are taxed at 10.75%. Above that, 35.75%.

A worked example for 2026/27, with no other income:

That keeps the director just inside the basic-rate band. Any further profit can stay in the company, taxed at the Corporation Tax rate, until a later year or a different use.

What paperwork does a dividend need?

1. Up-to-date accounts showing enough distributable profit after Corporation Tax.
2. A board decision recorded in minutes.
3. A dividend voucher for each shareholder showing date, company, shareholder, amount.
4. The payment from the company account to the shareholder.

Paying a dividend the company cannot cover is unlawful and may have to be repaid. Money taken without either a salary run or a declared dividend sits on the director's loan account instead.

Should profit stay in the company?

If you do not need it, leaving profit in the company defers personal tax. The company can use it for growth, hold it as a buffer, or pay it out in a year when your other income is lower. Many directors keep that buffer in more than one currency if they earn from clients abroad, so a payment in dollars does not have to be converted the day it arrives.

Where Rivet fits

Rivet opens business accounts for registered companies. A UK Ltd can hold GBP, USD and EUR in the company's name, pay salaries and dividends to UK accounts by Faster Payments, and keep overseas income in its original currency until the directors decide what to do with it.