As a director of your own company, you pay tax in two places. The company pays corporation tax on its profits. You personally pay income tax and National Insurance on any salary through PAYE, and income tax on dividends through self assessment.
Most owner-managed companies pay a modest salary and take the rest as dividends. The right mix depends on profits, other income and plans for the money, so it is worth reviewing each year.
Salary
A director's salary goes through payroll like any employee's. For 2026/27:
- income tax at 20 percent above the £12,570 personal allowance, 40 percent above £50,270 and 45 percent above £125,140
- employee National Insurance at 8 percent between £12,570 and £50,270, and 2 percent above
- employer National Insurance at 15 percent above £5,000
The employment allowance of £10,500 is not available where the only employee paid above £5,000 is a director, so a one-person company pays employer's National Insurance on salary above that level.
A salary of at least £6,708 protects your state pension record. Salary and employer's National Insurance are deductible for corporation tax.
Dividends
Dividends are paid from profits after corporation tax and are not deductible for the company. For 2026/27, the first £500 is covered by the dividend allowance. Above that, dividends are taxed at:
- 10.75 percent in the basic rate band
- 35.75 percent in the higher rate band
- 39.35 percent in the additional rate band
These rates are 2 percentage points higher than in 2025/26. There is no National Insurance on dividends. A dividend can only be paid if the company has enough distributable profits.
Corporation tax
The company pays corporation tax at 19 percent on profits up to £50,000 and 25 percent on profits over £250,000, with marginal relief in between. These limits are divided between associated companies. Tax is usually due nine months and one day after the year end.
A worked example for 2026/27
A company with one director makes £80,000 profit before paying her. She takes a salary of £12,570 and dividends of £37,700.
- Salary: no income tax or employee National Insurance. Employer National Insurance is 15 percent of £7,570, which is £1,135.50.
- Company profit after salary and employer National Insurance: £66,294.50. Corporation tax with marginal relief: £13,818.
- Dividends: her total income is £50,270, within the basic rate band. After the £500 allowance, tax is 10.75 percent of £37,200, which is £3,999.
She receives £50,270 gross and keeps £46,271. The company retains about £14,776 after tax and dividends.
Self assessment
Directors usually need to file a self assessment tax return. For 2026/27, the return and payment of any balance are due by 31 January 2028.
Where the bill is £1,000 or more and less than 80 percent was collected at source, payments on account also apply. In the example above, the director would pay £3,999 on 31 January 2028, plus a first payment on account for 2027/28 of £1,999.50 on the same day. Setting aside money for dividend tax as dividends are taken avoids this surprise.
Other things to watch
- Director's loan account. If you owe the company money at the year end and do not repay it within nine months, the company pays section 455 tax at 35.75 percent on loans made from 6 April 2026. Loans over £10,000 can also create a benefit in kind.
- Benefits in kind. Company cars and other benefits are taxable on you, with Class 1A National Insurance for the company.
- Pension contributions. Company contributions are generally deductible and free of National Insurance, within the £60,000 annual allowance.
The Autumn Budget on 28 October 2026 may change some of these figures for future years.
What to do
- Review your salary and dividend mix before the start of each tax year.
- Check company reserves before each dividend and keep minutes and vouchers.
- Set aside money for dividend tax and payments on account as you go.
- Keep your director's loan account under control.
- Consider company pension contributions as part of your extraction plan.
If you would like us to work out the best mix for you, book a free call.
