Salary vs Dividends Strategy 2026/27

For limited company directors, the "perfect" pay structure changes every year. For 2026/27, the calculation is more complex due to the 15% Employer National Insurance rate and the increased 10.75% dividend tax.

​The Salary

For most single-director companies, a salary of £12,570 remains the "sweet spot." It is high enough to count as a qualifying year for your State Pension but stays below the primary threshold for Employee NI. Furthermore, the entire salary is a tax-deductible expense, saving your company 19–25% in Corporation Tax.

​The Dividends

After your £500 tax-free dividend allowance, you will pay 10.75% on dividends within the basic rate band. While this is higher than previous years, it usually remains more efficient than a high salary, which would attract both Employee NI and the 15% Employer NI charge.

​The "Two-Director" Bonus

If you have multiple employees, you may be eligible for the Employment Allowance, which can offset your Employer NI costs, potentially making a slightly higher salary more attractive.

It should be noted that your circumstances indivually might not fit the model perfectly so if there's any doubt please do get in touch and we can help to guide you through the correct strategy for you.