Paying yourself as a limited company director in 2026/27.

The company's money is not your money

A limited company is a separate legal person. The money in its bank account belongs to the company, even if you own every share. To move it into your own pocket you need a recognised route.

For most small company owners there are three:

• Salary. Paid to you as a director through the company payroll.
• Dividends. Paid to you as a shareholder out of the company's profits.
• Director's loan. Money taken out that is not salary or dividends, and which you may owe back.

Each route is taxed differently. That is why the mix matters, and why the right answer changes when tax rates change.

Paying yourself a salary

If the company pays you a salary, it must register as an employer and run payroll. Directors count as employees for this purpose. Income Tax and National Insurance are worked out through payroll and paid to HMRC.

Directors are treated a little differently from other staff. Their National Insurance is based on their pay across the whole tax year, not each pay period on its own. So a director who takes most of their salary in one month is not penalised compared with one paid evenly.

A salary also has a benefit for the company. It is a business cost, so it reduces the profit that Corporation Tax is charged on. Dividends do not work that way. GOV.UK is clear that you cannot count dividends as business costs when working out Corporation Tax.

The salary thresholds that matter for 2026/27

A handful of figures shape most director salary decisions. These are the HMRC rates for employers for 2026/27:

• Secondary Threshold: £5,000 a year. Above this, the company pays employer National Insurance at 15%.
• Lower Earnings Limit: £6,708 a year. The bottom of the band that protects your National Insurance record.
• Primary Threshold: £12,570 a year. Above this, you pay employee National Insurance at 8%, falling to 2% above the Upper Earnings Limit.
• Personal Allowance: £12,570. The standard amount of income you can have before Income Tax is due.
• Employment Allowance: £10,500. A reduction in the employer National Insurance bill, for companies that qualify.

Earning between the lower limit and the Primary Threshold matters for your State Pension. GOV.UK explains that in that band you usually pay no National Insurance, but your contributions are treated as paid to protect your record.

The Employment Allowance catch for one-person companies

The Employment Allowance can wipe out a large employer National Insurance bill. But there is a rule that trips up many small companies. If the company has only one director, that director must not be the only employee liable for employer National Insurance.

In plain terms, a company whose only paid employee is its sole director cannot claim it. A company that also employs other staff above the threshold usually can.

Common salary levels and what they mean

There is no single right salary. The figures above create a few natural stopping points:

• £5,000. No employer or employee National Insurance and no Income Tax. But it sits below the Lower Earnings Limit, so the year may not count towards your State Pension.
• Between £6,708 and £12,570. No employee National Insurance and no Income Tax if you have no other income, and your National Insurance record is protected. The company pays employer National Insurance on anything above £5,000.
• £12,570. Uses your full Personal Allowance and stays at the Primary Threshold, so you pay no employee National Insurance. The company pays 15% employer National Insurance on £7,570, which is £1,135.50, unless it can claim the Employment Allowance.

Going above £12,570 usually means paying 8% employee National Insurance and 20% Income Tax on the extra, on top of employer National Insurance. For most owner-directors, that makes dividends the cheaper way to take the rest.

These levels assume you have no other income. If you also have a job, a pension or rental income, your Personal Allowance may already be used up.

How dividends are taxed in 2026/27

A dividend is a payment the company makes to its shareholders out of profit. The company has already paid Corporation Tax on that profit, and pays no further tax when it hands the dividend out.

You then pay Income Tax on dividends you receive. For 2026/27 the position is:

• Dividend allowance: the first £500 of dividends is tax free
• Basic rate band: 10.75%
• Higher rate band: 35.75%
• Additional rate band: 39.35%

Dividends are added on top of your other income to work out which band they fall in. Any part of your Personal Allowance not used by salary covers dividends first. For most of the UK, the basic rate band runs to £50,270 of total income, and the higher rate band to £125,140.

If your dividends are more than your unused Personal Allowance and the dividend allowance, you need to report them to HMRC. For most directors that means a Self Assessment tax return.

Corporation Tax comes first

Dividends can only come from profit after Corporation Tax. For financial years starting 1 April 2026, the rates are:

• 19% small profits rate for profits of £50,000 or less
• 25% main rate for profits over £250,000
• Marginal Relief for profits in between, which gives an effective rate between the two

The £50,000 and £250,000 limits are reduced for short accounting periods and shared between associated companies. A salary, and the employer National Insurance on it, comes off profit before any of this is worked out.

A worked example

The answer can change with the level of profit, other income, where you live and whether the company can claim the Employment Allowance. It is worth working through your own figures each year rather than copying a number.

The paperwork behind a dividend

Dividends have rules of their own. GOV.UK sets out what a company must do:

• Check the profits. The company must not pay out more in dividends than its available profits from the current and previous years.
• Hold a directors' meeting. The dividend is declared at a meeting, and minutes must be kept even if you are the only director.
• Write a dividend voucher. It shows the date, the company name, the shareholders' names and the amount. The shareholder gets a copy and the company keeps one.
• Pay all shareholders. Dividends must usually be paid to all shareholders.

Checking available profits is where many small companies go wrong. If the books are months out of date, nobody knows the true profit when the dividend is paid.

When money taken out becomes a director's loan

If you take money from the company that is not salary, dividends or a repayment of money you put in, it is a director's loan. The company must keep a record of it.

If you owe the company money, your director's loan account is overdrawn. You may have to pay tax on it, and the company may owe tax too if you are also a shareholder. Regular drawings that were meant to be dividends can end up here when the paperwork or the profits are not in place.

Scotland and other income

The Income Tax bands in this guide are the ones for England, Wales and Northern Ireland. If you live in Scotland, different Income Tax rates and bands apply, so check the Scottish figures on GOV.UK before choosing a salary.

Why up-to-date books make this easier

Every decision in this guide depends on knowing the company's profit. You need it to set a sensible salary, to check there are profits available for a dividend, and to spot drawings that are turning into a loan.

When the books are kept up to date every day, those numbers are there when you need them. You can decide on a dividend in the middle of the year with real figures, not a guess.