Not everyone has the freedom to decide how they are paid or to structure their income in the most tax-efficient way.
So, if you do run your own limited company and have this luxury, you need to make sure you are getting it right.
Most directors choose to pay themselves through a mix of a salary and dividends.
With dividend rates going up and Income Tax thresholds frozen until 2031, it might be a good time to review whether your structure is still working efficiently.
What are the benefits of paying yourself with a salary?
Salaries are not just a monthly payment that goes into your bank account.
They can be deducted as a business expense, reduce Corporation Tax liabilities and help maintain National Insurance records for State Pension purposes.
Many directors choose a salary based around key thresholds, such as £6,500 to secure National Insurance credits or £12,570 to fully utilise the Personal Allowance without triggering Income Tax.
If your earnings do go above the Personal Allowance, then these Income Tax Rates will apply:
| Basic rate | 20 per cent | On earnings from £12,571 to £50,270 |
| Higher rate | 40 per cent | On earnings from £50,271 to £125,140 |
| Additional rate | 45 per cent | On earnings over £125,140 |
Also, if your salary goes above certain levels, it can lead to employee and employer National Insurance contributions and this will increase the overall costs to your business.
How is taking dividends more tax-efficient?
Dividends are a big part of a director’s income and these rates are going up in the 2026/27 tax year.
From April 2026, the new dividend tax rates are:
| Basic rate | 10.75 per cent | On earnings from £12,571 to £50,270 |
| Higher rate | 35.75 per cent | On earnings from £50,271 to £125,140 |
| Additional rate | 39.35 per cent | On earnings over £125,140 |
Even though these rates are going up, it is still more tax-efficient to take dividends alongside a salary than just taking a salary on its own.
This is mainly because dividends are not subject to National Insurance and the tax rates are significantly lower than those for Income Tax.
However, they can only be paid from retained profits after Corporation Tax, so your company must be performing well enough to support this.
You also need to ensure that you are declaring your dividends properly with the right documentation and reporting them through your Self-Assessment tax return.
How can we support you?
There is no perfect structure that works for all directors and finding that balance can feel stressful, especially with changing rates being added to the mix.
Our professional team are here to support you by reviewing your salary and dividend strategies and ensuring your income is structured as efficiently as possible.
We will also assess that you are declaring your pay properly, so you can continue to reap the rewards and not stress about any compliance issues arising.
For further advice on dividends and paying yourself, contact our team today.
