Not all directors receive dividends, but owner‑managers can access both salary and dividend options, offering more flexibility and planning opportunities than standard employees. 

This guide explains the most effective remuneration strategies for the 2026/27 tax year, using verified HMRC and professional tax sources. 

Strategy 1 - Paying Yourself Through Salary 

A salary is treated as standard employment income and is subject to Income Tax and National Insurance Contributions (NICs). 

Income Tax (2026/27)

For England, Wales, and Northern Ireland, the Income Tax structure remains consistent: 

• 20% basic rate on income up to £37,700 above the Personal Allowance. 
• 40% higher rate on income between £37,701 and £125,140. 
• 45% additional rate on income above £125,140. 

The Personal Allowance remains at £12,570 for 2026/27. 

National Insurance (NICs)

Key NIC thresholds for directors (annual basis): 

• Primary Threshold: £12,570/year before employee NIC applies. 
• Secondary Threshold (Employer NIC): £5,000/year before employer NIC starts. 
• Employee NIC rates: 8% (main rate) and 2% above the UEL. 
• Employer NIC rate: 15%. 

Corporation Tax Relief 

Salary is deductible against Corporation Tax, reducing your company’s taxable profits. Corporation tax rates continue to vary between 19% and 25%, depending on company profits. 

Strategy 2 - Paying Yourself Through Dividends 

Dividends are paid from post‑tax company profits and do not reduce Corporation Tax. However, even with tax increases, they remain more efficient than taking higher salaries. 

Dividend Allowance (2026/27) 

Following confirmed government changes, dividend tax rates for 2026/27 are: 

• 10.75% (basic rate) 
• 35.75% (higher rate) 
• 39.35% (additional rate)

The Dividend Allowance remains at £500 for 2026/27. 

Why Dividends Still Matter 

They avoid employee and employer NICs, as well as offering flexibility for tax planning. 

They sit “on top” of other income when calculating tax bands.



Strategy 3 - Combining Salary and Dividends 

For most owner‑directors, a hybrid approach continues to deliver the most tax‑efficient outcome. A typical strategy in 2026/27 is: 

Take a modest salary around the NIC Primary Threshold. 

Top up the remainder of your income with dividends, using up the basic‑rate band efficiently. 

Changes in recent tax years, including the reduction of the dividend allowance to £500, increased dividend tax rates, and continued employer NIC obligation mean that careful planning is more important than ever. 

Practical Example: Paying Yourself Up to the Basic‑Rate Limit (2026/27) 

To illustrate how directors can structure their remuneration efficiently, here is a clear example using up‑to‑date 2026/27 tax rates. 

Step 1 — Salary 

The director takes a salary of £12,570, fully covered by the Personal Allowance, meaning: 

£0 Income Tax due. 

£0 employee NIC, as this is at the Primary Threshold. 

Step 2 — Dividends 

The basic‑rate band is £37,700 above the Personal Allowance. £500 of this is tax‑free (thanks to the dividend allowance). 

The remaining £37,200 taxed at the basic‑rate dividend tax of 10.75%. 

Dividend tax ≈ £37,200 × 10.75% = £3,999 

This maximises income within the basic‑rate band while keeping tax liabilities relatively low. 

Final Considerations 

Choosing the right combination of salary and dividends depends on: 

• Your company’s profitability 
• Your personal income targets 
• NIC implications (especially employer NIC for single‑director companies) 
• Whether you need higher salary for mortgage or lending affordability 

Eligibility for Employment Allowance 

With dividend allowances shrinking and tax rates rising, directors should review their remuneration strategy annually and consider speaking to a qualified accountant to ensure compliance and optimal tax efficiency. 

By understanding how each payment method is taxed and applying updated 2026/27 rules, directors can continue to extract income from their companies in the most efficient way possible.