Paying yourself from your business – everything you need to know about directors’ salaries

22nd July 2026

Most Tax Efficient Way to Pay Yourself as a Director 2026/27

In recent years a number of changes have been made to tax rates on dividends, as well as to rates and thresholds for National Insurance Contributions. As a director-shareholder of a limited company, one of the decisions you face is how to pay yourself in the most efficient way. Here, we outline the options and what the considerations are.

Key details of directors’ salaries

The first consideration to note is that in order to maintain their National Insurance record, directors must receive a director’s salary of at least £559 per month. Salary is tax-deductible expense, meaning that if the company is the director’s main income source, their monthly salary payment should not be subject to Income Tax or employee NICs up to a maximum of £1,048 each month, or employer NICs up to £416 per month.

Those paying themselves a director’s salary of at least £559 per month will need to register their company as an employer and run payroll. This should comply with Real-Time Information (RTI) rules.

It’s worth noting that sole-director companies don’t qualify for Employment Allowance, but paying a salary may still bring advantages.

Dividends

Dividends are company profits that are paid to shareholders. The board of directors decides whether dividends should be paid and how much should be paid. They are paid in accordance with shareholdings and are not tax-deductible. Dividends also need to be documented with the relevant paperwork, such as board meeting minutes and dividend vouchers.

The Dividend Allowance has changed dramatically in the past decade. From April 2016 – April 2018, shareholders could receive up to £5,000 in dividends tax free. This was slashed to £500 in April 2024 and remains the same for the 2026-27 tax year. Dividend payments not covered by the allowance are subject to the following Dividend Income Tax rates:

Basic rate – 10.75%
Higher rate – 35.75%
Additional rate – 39.35%

Bonuses

Directors can receive bonuses, which are usually paid annually and based on personal performance or the performance of the company. These are subject to Income Tax and NICs where applicable.

Considerations when paying yourself

When determining how to pay yourself in the most tax efficient way, you’ll need to consider the tax implications of taking a salary, receiving dividends and taking bonuses. Traditionally a low salary, high dividend strategy was advised, but the aforementioned changes to the Dividend Allowance have made this less effective in 2026.

It’s also worth considering the company’s Corporation Tax liability. Corporation Tax is paid on profits, so salaries and NICs are exempt. Paying yourself in this way is likely to be more tax efficient for the business’ finances. A salary also ensures you qualify for a state pension and offers greater tax relief on personal pension contributions.

Seek accountancy advice

With so many factors involved, it can be tricky to decide how best to pay yourself as a director. For maximum efficiency, discuss your needs and circumstances with a reputable tax advisor and review periodically.