This guide covers the 2026/27 tax year (6 April 2026 to 5 April 2027). For the previous year, read our 2025/26 salary and dividend guide.
From 6 April 2026 the basic and higher rates of dividend tax each rose by 2 percentage points. National Insurance thresholds and the Personal Allowance are unchanged, so the most efficient salary stays the same, but dividends now cost more in tax. Here is what that means for paying yourself from your limited company in 2026/27.
Key rates for 2026/27
| Item | 2026/27 |
|---|---|
| Personal Allowance | £12,570 |
| Basic rate band (England, Wales and Northern Ireland) | £12,571 to £50,270 |
| Employee National Insurance (Class 1) | 8% on earnings from £12,570 to £50,270, 2% above |
| Employer National Insurance (Class 1) | 15% on earnings above £5,000 a year |
| Lower Earnings Limit (State Pension qualifying year) | £6,708 a year (£129 a week) |
| Employment Allowance | £10,500 per employer |
| Dividend allowance | £500 |
| Dividend tax rates | 10.75% basic (was 8.75%), 35.75% higher (was 33.75%), 39.35% additional (unchanged) |
| Corporation Tax | 19% on profits up to £50,000, 25% over £250,000, marginal relief in between (effective 26.5%) |
The higher savings and property income tax rates announced for April 2027 do not apply to dividends, and do not affect 2026/27.
Step 1: choose your salary
Salary is deductible for Corporation Tax, while dividends are paid from profits after Corporation Tax. The right salary is the point where the National Insurance cost stops being outweighed by the tax saving.
Option A: £5,000 (no National Insurance at all)
£5,000 is the employer’s secondary threshold, so no National Insurance is payable by you or the company. But it is below the Lower Earnings Limit of £6,708, so it does not earn a qualifying year for your State Pension unless you get credits another way.
Option B: £6,708 (protects your State Pension)
A salary at the Lower Earnings Limit gives you a State Pension qualifying year with no employee National Insurance. If the company cannot claim the Employment Allowance, it pays employer National Insurance of about £256 (15% of the £1,708 above £5,000).
Option C: £12,570 (usually the most efficient)
A salary of £12,570 uses your full Personal Allowance and stays at the employee National Insurance primary threshold, so there is no income tax or employee National Insurance. Without the Employment Allowance, the company pays employer National Insurance of £1,135.50 (15% of £7,570).
The higher dividend rates make salary in this band even more attractive than before. For a company paying Corporation Tax at 19%, £1 of profit paid as salary between £5,000 and £12,570 leaves you about 87p, while the same £1 paid as a basic rate dividend leaves about 72p after Corporation Tax and 10.75% dividend tax.
Step 2: the Employment Allowance
The Employment Allowance is £10,500 and is set against the company’s employer National Insurance bill. If your company can claim it, a £12,570 salary costs nothing in employer National Insurance.
A company cannot claim it if the only employee paid above the secondary threshold is a director, so most one-director companies are excluded. Companies with other employees, or two or more directors on the payroll, may qualify. See HMRC’s guidance on claiming the Employment Allowance.
Step 3: take the rest as dividends
Dividends can be paid only from distributable reserves. For 2026/27:
- the first £500 is covered by the dividend allowance
- dividends within the basic rate band (total income up to £50,270) are taxed at 10.75%
- dividends above that are taxed at 35.75%, and at 39.35% above £125,140
With higher rate dividends now taxed at 35.75%, it is even more worth considering leaving surplus profit in the company or paying it into a pension rather than drawing it above the basic rate limit.
Worked example: £60,000 profit, one director, 2026/27
Assumptions: a company with £60,000 profit before paying the director, a single director with no other income, living in England, Wales or Northern Ireland, and profits paid out up to the basic rate limit. Figures are rounded to the nearest pound.
| Salary £5,000 | Salary £6,708 | Salary £12,570 | Salary £12,570 with Employment Allowance | All salary | |
|---|---|---|---|---|---|
| Salary | £5,000 | £6,708 | £12,570 | £12,570 | £52,826 |
| Employer NI | £0 | £256 | £1,136 | £0 | £7,174 |
| Corporation Tax | £10,825 | £10,304 | £8,796 | £9,012 | £0 |
| Dividends | £44,175 | £42,731 | £37,499 | £37,700 | £0 |
| Dividend tax | £3,881 | £3,910 | £3,977 | £3,999 | £0 |
| Income tax and employee NI | £0 | £0 | £0 | £0 | £11,630 |
| Take-home pay | £45,294 | £45,530 | £46,091 | £46,271 | £41,197 |
A £12,570 salary leaves the director about £797 better off than a £5,000 salary, and about £4,894 better off than taking everything as salary. Compared with 2025/26, the same director takes home about £740 less because of the dividend tax increase. With the Employment Allowance, £718 of profit is also left in the company.
Other points to consider
- Scottish taxpayers: a £12,570 salary is covered by the Personal Allowance, and dividends are taxed at the UK rates above. Scottish income tax rates only matter if you take a higher salary.
- Pension contributions: employer contributions are usually deductible for Corporation Tax and free of National Insurance. See our guide to pension contributions for directors and our wider guide to extracting company profits tax-efficiently in 2026/27.
- Paperwork: salary must be run through payroll (RTI), and every dividend needs board minutes and a dividend voucher. Read what are dividends.
- Reporting dividends: if your dividends are over £10,000 you must complete a Self Assessment tax return. See tax on dividends.
- Director’s loans: drawing money without declaring salary or dividends can leave an overdrawn director’s loan account, with Section 455 tax at 33.75% if not repaid in time. See our director’s loan account guide.
Summary
For 2026/27, a salary of £12,570 remains the most efficient choice for most owner-managed company directors, with or without the Employment Allowance, topped up with dividends to the basic rate limit. The higher dividend rates make pension contributions and retaining profit in the company more attractive than before. Every situation is different, so take advice before setting your pay.
Want us to work out the best mix for you? Contact us, call 0845 862 6009 or message us on WhatsApp. See also our payroll service.
Sources: HMRC rates and thresholds for employers 2026 to 2027, Income Tax rates and allowances, Tax on dividends and Corporation Tax rates on GOV.UK. This article gives general information only and does not constitute professional advice.