The question of how much a director can pay themselves has a clear answer in 2026-27 — but it is not the same as asking how much the company can afford to pay out.
The most tax-efficient structure is a salary of £12,570 (at the personal allowance) plus dividends up to £37,700, totalling £50,270. On that, you pay roughly £3,500 in personal tax — compared to around £12,000 if you took the same amount entirely as salary. The gap is wide enough that getting this wrong has a real cost.
There's no maximum — but there's a clear optimal
As a UK limited company director, you can legally pay yourself any amount — there is no HMRC rule that caps your salary or dividends. What matters is how you structure the payments, because the difference between an efficient and inefficient approach can be £5,000–£15,000 per year in tax for the same level of income.
The question most directors are actually asking is: what's the most tax-efficient way to extract money from my company? The answer has a specific structure.
Layer 1: The salary (£12,570)
Pay yourself a salary equal to the personal allowance: £12,570 for 2026-27.
Why this number?
- £12,570 is the personal allowance — you pay zero income tax on it
- £12,570 is also the Primary Threshold — you pay zero employee National Insurance
- The entire salary cost (including employer NI) is deductible from company profit — saving 19–25% corporation tax
The employer NI your company pays on a £12,570 salary: (£12,570 − £5,000) × 15% = £1,135.50. That feels annoying, but it's offset by the corporation tax deduction on the whole cost. The net company outlay — after CT relief — is around £11,100 to put £12,570 in your pocket. That's a good deal.
Layer 2: Dividends (up to £37,700)
Once you've paid your salary, you extract further income as dividends — paid from company post-tax profits. The personal tax rates on dividends are much lower than on salary:
| Dividend | Amount | Personal tax rate |
|---|---|---|
| Dividend allowance | First £500 | 0% |
| Basic rate dividends | £501 to £37,700 (top of basic rate band) | 8.75% |
| Higher rate dividends | Above £37,700 (£50,270 total income) | 33.75% |
On a £37,700 dividend (after using the £12,570 salary to reach £50,270 total): tax is roughly £3,244. That's about 8.6% effective rate on the dividends. Compare that to income tax + NI on a salary of the same amount: over 30% effective rate.
Golden nugget: dividends require distributable profits
You can only legally pay dividends if the company has sufficient retained profits after tax. If you pay dividends when there are no distributable profits, it's an illegal distribution — personally recoverable from you and subject to HMRC penalties. Check your management accounts before each dividend declaration. The test is "retained profits at the time of declaration" — not profit from the current year only. Retained profits from previous years count too.
Layer 3: Employer pension (for profits above £50,000)
If your company generates more profit than you want to extract as dividends (either because it pushes you into higher-rate tax, or toward the £100k personal allowance trap), direct the surplus into an employer pension contribution. The company pays directly into your pension — no personal tax, no NI, corporation tax saved. At this level, the pension is almost always more efficient than higher-rate dividends.
The practical limit: your company's distributable profits
The amount you can actually pay yourself is capped by your company's profits. There's no point planning to take £80,000 in salary and dividends if the company made £50,000. You must have:
- Sufficient retained profit to cover dividend payments at the time of declaration
- Sufficient cash flow to make salary payments and settle employer NI and PAYE on time
Many first-year directors fall into the trap of taking "drawings" throughout the year (informal cash withdrawals) and then trying to categorise them at year-end. This creates an overdrawn director's loan account and potential Section 455 tax charges. The better habit: decide your salary and dividend structure at the start of the year, set up a regular salary payment through payroll software, and declare dividends formally when you have profits to support them.
Quick reference: the full picture for 2026-27
| Payment type | Optimal amount | Personal tax | CT deductible? |
|---|---|---|---|
| Director salary | £12,570 | 0% income tax, 0% employee NI | Yes (including employer NI) |
| Dividend allowance | £500 | 0% | No (paid from post-CT profit) |
| Basic rate dividends | Up to £37,200 | 8.75% | No (paid from post-CT profit) |
| Employer pension | Up to £60,000/year | 0% | Yes |
| Higher rate dividends | Above £50,270 total income | 33.75% | No (paid from post-CT profit) |
Golden nugget: State Pension qualifying years matter more than most directors realise
The full new State Pension requires 35 qualifying years of National Insurance contributions or credits. Each year you pay yourself a salary between £6,396 (the Lower Earnings Limit) and £12,570 earns a State Pension qualifying year with zero employee NI — you get the credit without the personal cost. Directors who take zero salary lose this qualifying year. Over a 35-year working life, losing 10 qualifying years costs you roughly £3,180 per year in retirement income for life. Don't ignore this when deciding whether to take a salary.
Written by Desh Naidoo-Cann · Founder, Apex Assets Group · MBA Finance
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Frequently asked questions
Can I pay myself a salary of £0?
Do I need to register as an employer and run payroll?
Can I vary my salary and dividends each year?
What's the difference between a dividend and a drawing?
Important: This article is for general information only and does not constitute tax or legal advice. Tax rules change — always verify with HMRC or a qualified accountant before making decisions. Published 18 April 2026 for 2026-27.