How to Pay Yourself as a Limited Company Director
Most limited company directors pay themselves using a combination of salary and dividends. Getting this right can save thousands of pounds in tax each year. This guide explains how the salary-dividend strategy works, what the optimal amounts are for 2026/27, and how to calculate what you will actually take home.
Calculate your optimal salary and dividend split.
Open dividend calculator →Why salary and dividends — and not just salary?
Salary attracts employee and employer National Insurance once above relevant thresholds — dividends do not bear NI.
The company earns profit, pays corporation tax, then can distribute dividends from retained profits.
The optimal salary for 2026/27
ClearFigures uses an employer NIC secondary threshold of £5,000 for 2026/27 in HMRC config—the same anchor described in dividend calculator FAQs on this site. At a £5,000 salary, employer NI computes to zero under that threshold and employee NI stays nil, while preserving a NI record for State Pension eligibility subject to HMRC’s wider rules.
Because salary sits beneath the £12,570 personal allowance here, PAYE income tax on that slice is commonly nil—but always confirm with payroll software for your PAYE coding.
Some directors choose salary between £5,000 and £12,570 to use more personal allowance—but employer NI applies above the employer secondary threshold (£5,000 in our HMRC config); see your accountant.
How dividends work
You may only declare dividends from distributable retained profits.
For 2026/27 in our calculators, dividend allowance remains £500. Dividends are treated as sitting on top of non-dividend income for band stacking after the allowance is used.
Tax rates on taxable dividends mirror the HMRC figures encoded on this site: 8.75% (basic dividend rate), 33.75% (higher dividend rate), 39.35% (additional dividend rate).
A worked example for 2026/27
This mirrors the sequencing in our dividend calculator scripts: salary is deducted before corporation tax inside the calculator; corporation tax applies at small profits vs main thresholds as encoded for 2026/27.
| Company profit before salary | £80,000 |
|---|---|
| Director salary (optimiser example) | £5,000 |
| Taxable profit for corporation tax (per calc) | £75,000 |
| Corporation tax @ 25% (main rate bands in site models) | £18,750 |
| Retained profits available for dividends (all extracted) | £56,250 |
| Employee PAYE NI on salary shown in formulas | £0 |
| Income tax on salary shown in formulas | £0 |
| Dividend allowance | £500 (tax-free slice per site config) |
| Taxable dividends after allowance | £55,750 |
| Dividend tax (bands stacked after salary) | ≈ £10,641 |
| Net cash to you (£5,000 salary + £56,250 dividends − tax) | ≈ £50,609 |
| Total HMRC taxes (corp + dividend tax as above) | £18,750 + £10,641 ≈ £29,391 |
Rounding is to pounds for readability; plugging the same headline numbers into ClearFigures’ dividend calculator will align with script output.
Match this worked example interactively.
Try the dividend calculator →The dividend allowance — what changed
| Tax year | Dividend allowance (per HMRC guidance encoded on ClearFigures) |
|---|---|
| 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 onwards (2026/27 on site) | £500 |
How to actually pay yourself — the process
Setting up salary
- Register the company as an employer with HMRC if not already registered.
- Run payroll through HMRC-recognised software or a payroll bureau.
- Pay net salary from the company bank account to your personal account on pay day.
- File Full Payment Submission each pay period.
Paying dividends
- Prepare management accounts or at least sufficient records to prove distributable reserves.
- Hold a directors’ resolution or minute declaring the dividend.
- Issue a dividend voucher for each shareholder.
- Transfer cash from the company account when due.
Your Self Assessment return
If your salary and dividends are not fully taxed at source (dividends never are), you normally declare them on your self-assessment return and pay any balance by 31 January.
What about IR35?
Where a contract is Inside IR35, income from that engagement may be processed with PAYE-like deductions before profit hits your company’s flexible dividend pot. Outside IR35, the usual salary-plus-dividend extraction model described here is more relevant.
Use this site’s IR35 calculator to compare indicative paths—then talk to a specialist.
Model IR35 scenarios next to your extraction plan.
Open IR35 calculator →Key things to get right
- Illegal dividends: never pay dividends when retained earnings cannot support them.
- Records: keep payroll reports, bank statements, board minutes, and vouchers together.
- Self Assessment: register if HMRC requires you to report income not fully taxed via PAYE.
- Salary review: revisit salary each tax year when thresholds change (see config on ClearFigures).
Frequently asked questions
How often can I pay myself dividends?
As often as you like, as long as the company has sufficient retained profits. Each payment should be documented with a dividend voucher and board minute.
Do I need a separate business bank account?
Yes. A limited company must have a business bank account. Company money belongs to the company, not to you personally.
What is a dividend voucher?
A document confirming a dividend payment. It should show the company name, date, shareholder name, amount per share and total paid. You need it for your Self Assessment return.
Can I take a director's loan instead of salary or dividends?
Yes, but with caution. If not repaid within 9 months of your company year end, a 33.75% tax charge applies on the outstanding amount. Loans over £10,000 also create a benefit-in-kind liability.
What is the most tax-efficient way to extract profits above £100,000?
Above £100,000 income, the personal allowance tapers, creating an effective 60% marginal rate between £100,000 and £125,140. Pension contributions can restore the allowance — seek specialist accountant advice.
This guide is for general information only and does not constitute tax or financial advice. Always seek advice from a qualified accountant. Rates shown are for 2026/27.