Back to ResourcesDirector Pay

How Much Should I Pay Myself as a Director?

The most tax-efficient salary and dividend combination for company directors in the 2025/26 and 2026/27 tax years — explained in plain English.

Last updated: August 2026

The Basics

As a company director, you have flexibility in how you extract profits from your business. The three main methods are salary, dividends, and pension contributions. The most tax-efficient approach typically combines all three, but the optimal split depends on your personal circumstances, other income, and your company's profitability.

Optimal Salary for 2025/26

For most directors with no other employment income, the recommended salary is £12,570 per year (the Personal Allowance). This ensures you use your full income tax-free allowance and maintain a qualifying year for State Pension purposes. However, this triggers employer's National Insurance at 13.8% on earnings above the Secondary Threshold (£9,100). Some directors prefer a salary of just £9,100 to avoid employer's NIC entirely — the right choice depends on whether you value the additional NI credits.

Salary Option	Amount	Consideration
NI Secondary Threshold	£9,100/year	No employer's NIC. Still qualifies for State Pension. Leaves £3,470 of Personal Allowance unused.
Personal Allowance	£12,570/year	Uses full tax-free allowance. Employer's NIC of £479/year applies. Corporation Tax deduction on salary + NIC.

Dividends: The Tax Rates

After taking your salary, the remaining profits can be extracted as dividends. Dividends are paid from post-Corporation Tax profits and are taxed at lower rates than salary:

Dividend Allowance: £500 tax-free (2025/26)

Basic rate (up to £50,270 total income): 8.75%

Higher rate (£50,271 to £125,140): 33.75%

Additional rate (over £125,140): 39.35%

No National Insurance is payable on dividends — this is the key advantage

Worked Example: Director with £80,000 Profit

Let's say your company has £80,000 in profits before your salary. Here's how the numbers work with a £12,570 salary:

Salary: £12,570 — Tax: £0 (covered by Personal Allowance), Employee NIC: £0 (below Primary Threshold), Employer NIC: £479

Corporation Tax on remaining £67,430 profit (less £479 NIC deduction): £66,951 × 25% = £16,738

Available for dividends: £66,951 - £16,738 = £50,213

Dividend tax: First £500 at 0% = £0. Next £37,200 at 8.75% = £3,255. Remaining £12,513 at 33.75% = £4,223

Total tax burden: £479 (employer NIC) + £16,738 (Corp Tax) + £7,478 (dividend tax) = £24,695

Effective tax rate: 30.9% — compared to ~42% if taken entirely as salary

Pension Contributions

Employer pension contributions are one of the most tax-efficient ways to extract value from your company. They are a deductible business expense (reducing Corporation Tax), not subject to National Insurance, and not taxed as income until you draw your pension. The Annual Allowance is £60,000 (2025/26), and you may be able to carry forward unused allowance from the previous three years.

Common Mistakes to Avoid

We regularly see directors making these errors:

Taking dividends without sufficient retained profits — this is illegal and HMRC can reclassify them as salary

Not keeping a dividend board minute — even for single-director companies, you need a written record of each dividend declaration

Ignoring the impact on child benefit — dividends count as income for the High Income Child Benefit Charge (threshold £60,000)

Forgetting payments on account — if your dividend tax exceeds £1,000, HMRC will require payments on account for the following year

Not reviewing annually — thresholds and rates change every year. What was optimal last year may not be this year

Get Your Personal Calculation

The optimal salary/dividend split varies based on your total income, other directorships, spouse's income, pension contributions, and personal circumstances. We calculate this for every client annually and adjust as thresholds change. If you'd like us to run the numbers for your specific situation, get in touch.

Need help with this?

Our team can provide specific guidance tailored to your circumstances. No jargon, no obligation.

Start Your Business Review Contact Us Directly