Salary vs dividends for limited company directors (2026/27)
Important: This guide provides general information, not personalised financial advice. Financial products, rates and eligibility rules can change, so check the provider’s current terms before applying.
Quick answer
Salary is a business expense that reduces Corporation Tax but can attract employer National Insurance at 15% above £5,000 a year and employee NI above £12,570. Dividends are paid from profits after Corporation Tax and are taxed at 10.75%, 35.75% or 39.35% above a £500 allowance (2026/27).
Many directors take a salary up to a National Insurance threshold and the rest as dividends — the right split depends on profits, other income and whether the company can claim Employment Allowance.
Side by side
| Point | Salary | Dividends |
|---|---|---|
| Corporation Tax | Deductible | Paid from post-tax profits |
| Employer NI | 15% above £5,000 a year | None |
| Employee NI | 8% above £12,570, 2% above £50,270 | None |
| Personal tax | Income tax | £500 allowance, then 10.75% / 35.75% / 39.35% |
| State Pension record | Salary above the lower earnings limit (£6,708) can count | Doesn’t count |
Rules and figures from GOV.UK, as of 4 October 2026. General information, not advice.
Who it’s for
- Directors of limited companies deciding how to pay themselves
Who should skip it
These are general points to weigh up, not advice. You may want to look elsewhere if:
- You’re a sole trader — this doesn’t apply
- Your affairs are complex — speak to an accountant
Full explanation
A salary between the lower earnings limit (£6,708) and the primary threshold (£12,570) can protect your State Pension record without employee NI, but may still trigger employer NI above £5,000.
Calculators give estimates only — an accountant can check the full picture, including pension contributions.
The catch
Employment Allowance (£10,500) can’t be claimed if a company has one director who is the only employee liable for employer NI. Dividends can only be paid from profits.
FAQs
What is the employer NI rate for 2026/27?
15% above the secondary threshold of £5,000 a year.
Can a single-director company claim Employment Allowance?
Not if the director is the only employee liable for employer NI.
What are the dividend tax rates?
10.75%, 35.75% and 39.35% above a £500 allowance in 2026/27.
Do dividends count for State Pension?
No.
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