How to Pay Yourself from a Limited Company (2026/27)

Quick answer: for a one-director company in 2026/27, the usual mix is a salary of £12,570, the rest as dividends, and employer pension contributions for money you don't need yet. A £12,570 salary pays no Income Tax or employee National Insurance. The company pays £1,135.50 of employer National Insurance on it if it can't claim the Employment Allowance, but the salary and that National Insurance both come off profit before Corporation Tax, so in our worked examples £12,570 still beats a lower salary at £30,000, £60,000 and £100,000 of profit. If a job or pension already uses your personal allowance, a lower salary of £5,000 (no employer National Insurance) or £6,708 (the least that still earns a State Pension year) often does better. Work out your own split in the salary vs dividends calculator.

As a director you're an employee of your company, so it can pay you a salary. As a shareholder you own it, so it can pay you dividends. Add pension contributions, expenses and the director's loan account, and there are five ways money reaches you, each taxed differently. This guide covers all five with 2026/27 figures, then shows the take-home at three profit levels. If you haven't incorporated yet, read sole trader vs limited company in 2026 and run the sole trader vs limited company calculator first.

The five ways at a glance

All the 2026/27 rates are collected on our tax rates page.

1. Salary

Paying yourself a salary means running a payroll. GOV.UK says you must register as an employer before the first payday, even if you're only employing yourself as the sole director. Each payment is then reported to HMRC through Real Time Information (RTI) on or before payday. Our guide to running payroll for one employee or just yourself walks through the setup.

The 2026/27 thresholds that matter:

Directors use an annual earnings period. For a director, National Insurance is worked out on the whole year rather than each pay period, so a £12,570 salary costs the same whether you take £1,047.50 a month or one payment in March.

State Pension credits. Pay between £6,708 and £12,570 counts towards your State Pension as if you'd paid National Insurance. A £5,000 salary avoids employer National Insurance completely, but it's below the Lower Earnings Limit, so it doesn't earn that credit.

Employment Allowance. This takes up to £10,500 a year off the employer National Insurance bill. A company can't claim it if a director is its only employee paid above the £5,000 secondary threshold. It can if two directors, or a director and another employee, are paid above that level.

Salary is a business cost. The salary and its employer National Insurance come off profit before Corporation Tax, if the pay is reasonable for the work. Each £1 of salary between £5,000 and £12,570 costs the company £1.15 and reaches you tax-free. Left as profit, the same £1.15 would become a dividend of at most 93.15p after 19% Corporation Tax, before dividend tax. That's why £12,570 usually wins.

2. Dividends

A dividend is a share of the company's profit paid to its shareholders. Three rules come first:

• Profits first. The company must not pay out more than its available profits: the profit after tax built up over this year and earlier years, less losses and earlier dividends. Cash in the bank isn't the test.
• Paperwork every time. Hold a directors' meeting to declare the dividend and keep minutes, even if you're the only director. Write a dividend voucher for each payment showing the date, the company's name, the shareholder's name and the amount, and keep a copy.
• Shares decide the split. Dividends are paid per share, so everyone holding the same class of shares gets the same amount per share.

Our guide to paying UK dividends covers interim and final dividends and the paperwork step by step.

How dividends are taxed. The company has already paid Corporation Tax on the profit: 19% up to £50,000, 25% above £250,000, and an effective 26.5% on each pound in between once marginal relief applies. The Corporation Tax calculator gives the exact figure, and our explainer on what Corporation Tax is and when you pay it covers the deadlines. Then you pay dividend tax:

The basic and higher rates both rose by two percentage points on 6 April 2026.

Two details catch people out. Dividends are the top slice of your income: salary and other income use the personal allowance and bands first. And the £500 allowance is a 0% rate, not an exemption, so it still uses up basic-rate band.

Telling HMRC. Over £10,000 of dividends means a Self Assessment return. Below that, if you don't already file one, you can ask HMRC to collect the tax through your tax code, by 5 October after the tax year ends.

3. Employer pension contributions

The company can pay straight into your pension. For many directors this is the most tax-efficient route, with one catch: you can't spend the money until pension age.

• Corporation Tax relief. An employer contribution is normally deductible if it's paid wholly and exclusively for the business. For a director, HMRC looks at the whole pay package (salary, pension and benefits) against the value of the work.
• Relief when paid. The deduction falls in the accounting period in which the contribution is actually paid, so pay before the year end if you want relief that year.
• No National Insurance for you or the company, and no Income Tax when the money goes in.
• The annual allowance. For 2026/27 it's £60,000, covering employer and personal contributions together, plus unused allowance carried forward from the previous three tax years. It tapers by £1 for every £2 of adjusted income over £260,000 (where threshold income is over £200,000), to a minimum of £10,000. A £10,000 money purchase annual allowance can apply if you've already drawn a pension flexibly.
• Why the company should pay it. Your own contributions only get tax relief up to 100% of your earnings, and dividends don't count as earnings. On a £12,570 salary, that caps relieved personal contributions at £12,570 a year. Employer contributions aren't tied to your salary.

Illustration: £10,000 of profit paid into your pension puts the full £10,000 in the pension. Taken as a dividend instead, it becomes £8,100 after 19% Corporation Tax and £7,229.25 after basic-rate dividend tax. Pension withdrawals are taxed later, so part of the gain is a deferral.

4. Expenses and benefits

Money the company pays you back for genuine business costs isn't pay. It isn't taxed, and it reduces the company's profit.

• Reimbursed business expenses. Costs you paid personally for the company, such as software or a train fare to a client. Keep the receipt. Our honest list of business expenses covers what usually qualifies.
• Mileage. For business journeys in your own car or van, the company can pay you 55p a mile for the first 10,000 business miles in the tax year and 25p after that, free of tax and National Insurance. The rate rose from 45p on 6 April 2026. Motorcycles get 24p and bicycles 20p. Commuting doesn't count.
• Working from home. If you regularly work from home under an agreed homeworking arrangement, the company can pay £6 a week (£26 a month) towards household costs without receipts, or more with evidence. Since 6 April 2026 employees can no longer claim this relief from HMRC themselves, so it only helps if the company pays.
• Trivial benefits. A small gift, such as a birthday meal, is tax-free if it costs £50 or less, isn't cash or a cash voucher, isn't a reward for your work and isn't in your contract. Directors of close companies, which includes most owner-managed companies, are capped at £300 a tax year.

5. The director's loan account

Anything you take that isn't salary, a dividend or a repaid expense is a loan, recorded in your director's loan account. A loan isn't income, so there's no Income Tax when you take it, but it must be repaid or cleared:

• s455 tax. If the account is overdrawn at the year end and not repaid within 9 months, the company pays a temporary Corporation Tax charge on what's outstanding: 33.75% for loans made from 6 April 2022 to 5 April 2026, and 35.75% for loans made from 6 April 2026. It's refunded after the loan is repaid, written off or released, from 9 months and 1 day after the end of the accounting period in which that happens.
• Repay and re-borrow. If you repay £5,000 or more and borrow £5,000 or more again within 30 days, the repayment is ignored for s455.
• Over £10,000. Owe more than £10,000 at any point in the tax year, at less than HMRC's official interest rate, and it's a taxable benefit in kind: Income Tax for you, employer National Insurance for the company.
• Clearing it costs tax. You usually clear it with a dividend or a bonus, taxed in the normal way. A loan the company writes off is taxed on you too.

Check the charge with the director's loan s455 calculator, and see our director's loan account guide for the full rules.

Worked examples at three profit levels

Illustration only. 2026/27 rates, England, Wales and Northern Ireland Income Tax bands. One director, who is the only shareholder and only employee, so no Employment Allowance. No other income. The salary is paid first, then all profit left after Corporation Tax goes out as a dividend in the same tax year. A 12-month accounting period, no associated companies, no pension contributions. "Profit" is before paying the director.

The figures come from the engine behind our salary vs dividends calculator, which tries every £500 step of salary up to £50,000, plus each threshold, and keeps whichever leaves you the most.

At each level the company also pays £1,135.50 of employer National Insurance. Total tax and National Insurance comes to £5,596.55, £13,908.80 and £34,790.37 respectively.

What other common salaries would leave you with, on the same assumptions:

The £60,000 example, line by line

1. The company pays a £12,570 salary and £1,135.50 of employer National Insurance (15% of £7,570).
2. Taxable profit is £46,294.50. Corporation Tax at 19% is £8,795.96.
3. The remaining £37,498.54 is paid as a dividend.
4. The salary uses your whole personal allowance, so it carries no Income Tax or employee National Insurance.
5. The first £500 of dividend is taxed at 0% and the rest stays in the basic rate band: dividend tax is £3,977.34.
6. You keep £46,091.20: salary plus dividend, less dividend tax.

What the examples show

• £12,570 wins at all three levels, leaving between £462.80 and £797.49 a year more than a £5,000 salary.
• At £100,000 the higher rate arrives. The company is in the marginal relief band, and £29,476.46 of the dividend is taxed at 35.75%. This is where pension contributions, or leaving some profit in the company, start to pay.
• Other income changes the answer. If a job, pension or rent already uses your personal allowance, salary is taxed from the first pound and a lower salary often does better. Add that income in the calculator.

With the Employment Allowance

Say the company has a second employee paid above £5,000, perhaps a second director. Assume the £60,000 is profit after paying them, and the allowance also covers the director's National Insurance. The £1,135.50 disappears, Corporation Tax becomes £9,011.70, the dividend rises to £38,418.30 and the dividend tax to £4,255.79, as a little now reaches the higher rate band. Take-home is £46,732.51, which is £641.31 more than without the allowance. The best salary is still £12,570.

At £100,000 with the allowance, the calculator's best salary rises to £50,270, but it beats £12,570 by only £27.64, so the simpler £12,570 remains a reasonable choice.

Timing: tax years, year ends and 31 January

Your company's accounting year and the tax year (6 April to 5 April) are separate calendars.

• Splitting dividends across tax years. An interim dividend counts for tax when it's paid; a final dividend when it becomes due, usually when declared. So dividends paid on 5 April and 6 April land in different tax years. Splitting saves tax when one year would otherwise leave basic-rate band unused, such as a year when you take less.
• The 31 January bill. Dividend tax is paid through Self Assessment: tax for 2026/27 is due by 31 January 2028. If the bill is £1,000 or more and less than 80% of your tax was collected at source, HMRC also wants payments on account, each half of last year's bill, on 31 January and 31 July. In your first year of dividends, that January payment can be one and a half times the year's tax.
• Before the company's year end. Pay any pension contribution you want relief for that year, check the director's loan account (the 9-month s455 clock starts at the year end), and only declare dividends the latest figures show the company can afford.
• Spouse shareholdings. If your spouse or civil partner owns shares outright, dividends on them are their income, using their own allowances and bands. HMRC's settlements legislation can treat that income as yours if their shares are substantially just a right to income, such as non-voting shares with no rights to capital. In the Arctic Systems case (Jones v Garnett, 2007) the couple won only because the wife's ordinary share, with full rights, was an outright gift between spouses. Dividends on shares a parent gives to a child under 18 are generally taxed as the parent's. Take advice before changing who owns your shares.

Common mistakes

• Dividends without distributable profits. A dividend paid when the company has no available profits is unlawful. It can be treated as a loan from the company, and you can be made to repay it, for example if the company later becomes insolvent.
• Forgetting the paperwork. Without a board minute and a voucher, it's hard to show a payment was a dividend, and HMRC can argue it was salary or a loan. Keep both for every dividend, including monthly ones.
• An overdrawn director's loan account. Taking money "on account" without declaring dividends builds up a loan, with s455 tax at the year end and a benefit in kind once it's over £10,000.
• Running payroll without registering as an employer. Paying a salary without a PAYE reference leads to late RTI submissions and possible penalties. Register before the first payday, even if you're the only person on the payroll.
• Mixing up IR35. IR35 is a separate question about contractors whose work for a client would be employment without the company in between. It doesn't apply to an owner-director of a company with its own customers paying themselves in the usual way.

Where Ledgers fits

Ledgers keeps your company's books, so the profit behind each pay decision is current. It works out the PAYE and National Insurance on your salary, but it doesn't send RTI submissions; you or your accountant file payroll with HMRC. It tracks your director's loan account and shows the s455 position. Before you declare a dividend it checks distributable profits, then produces the board minute and dividend vouchers. From the Starter plan it also prepares a draft Corporation Tax computation for you or your accountant to file. See how it works for limited companies, or start free and put your company's books in order.

Frequently asked questions

What is the best salary for a limited company director in 2026/27? For a one-director company with no other income, £12,570 usually leaves the most, even after £1,135.50 of employer National Insurance. If a job or pension already uses your personal allowance, a lower salary such as £5,000 or £6,708 often does better.

Can I pay myself only in dividends? Yes, if the company has enough distributable profits, but you lose the Corporation Tax relief on a salary and the State Pension year. In our £60,000 example, no salary leaves £44,111.15 against £46,091.20 with a £12,570 salary.

Do I need to run payroll if I'm the only director? Yes, if the company pays you a salary. Register the company as an employer before the first payday, even if you're the only person it employs.

Can my company claim the Employment Allowance if I'm the only director? No. It can't be claimed where a director is the only employee paid above the £5,000 secondary threshold. It can if two directors, or a director and another employee, are paid above that level.

How much can my company pay into my pension? Contributions count towards your £60,000 annual allowance for 2026/27, plus unused allowance from the previous three years. The company gets Corporation Tax relief if the contribution is wholly and exclusively for the business.

Do I need a Self Assessment return for dividends? Yes, if your dividends are over £10,000. Below that, if you don't already file a return, HMRC can collect the tax through your tax code. Dividends covered by your allowances don't need reporting.

What happens if I take out more than my salary and dividends? The extra is a director's loan. If it's still owed 9 months after the year end, the company pays s455 tax at 33.75% or 35.75%, depending on when the loan was made, refunded after the loan is repaid.

Can I pay dividends monthly? Yes, as interim dividends, if the company has enough distributable profits each time. Each one needs its own board minute and voucher.

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Guidance only, not tax advice. Based on HMRC rules for the 2026/27 tax year, checked October 2026. Worked examples are illustrations calculated with the engine behind the salary vs dividends calculator.