If you run your own limited company, how you pay yourself has a real impact on your tax bill. Get the salary-and-dividend mix right and you can legally keep thousands more each year. Here’s
how it works for 2025/26.

The basics: salary vs. dividends

A director can take money out of their company in two main ways: a salary (paid through payroll) and dividends (paid from post-tax profit). They’re taxed very differently, which is exactly why the split
matters.

Salary is an allowable business expense, so it reduces your Corporation Tax. Dividends are not — they’re paid after Corporation Tax — but they’re taxed at lower personal rates and
aren’t subject to National Insurance.matters.

Setting the optimal salary

For most single-director companies, the sweet spot is a salary of £12,570 — the personal allowance. At this level you pay no income tax, while still preserving your state pension qualifying year.

• It’s high enough to count as a qualifying year for the state pension.
• It’s fully covered by your personal allowance, so no income tax is due.
• It maximises the Corporation Tax deduction on your salary.

Topping up with dividends

Once your salary is set, the rest of your income is usually best taken as dividends. The first £500 is tax-free thanks to the dividend allowance. After that, dividends are taxed at 8.75% (basic
rate), 33.75% (higher rate) and 39.35% (additional rate).

Because these rates sit below the equivalent salary rates and avoid National Insurance, a salary-plus-dividend structure almost always beats taking everything as salary.

A worked example

Say your company makes £60,000 profit. A £12,570 salary leaves around £47,430, which after Corporation Tax becomes roughly £38,000 of distributable profit — taken as dividends and taxed at
the lower dividend rates. The result is a noticeably higher take- home than an all-salary approach.

Want your own numbers? Our free take-home calculator does the
maths in seconds — or book a call and we’ll tailor it to your situation.