Salary or Dividend?

Another year passes and it’s time for me to update our annual profit extraction strategy sheet. Once again please do bear in mind that this Salary and Dividend factsheet gives our recommendations for taking a salary and dividends from your limited company. The figures are generic and may not be suitable for your circumstances; we strongly recommend that you take specific advice for your own personal circumstances. This factsheet is for illustration purposes only and should not be relied upon for your tax planning or tax affairs.

How much salary should you pay?

Assuming your company will make a profit of £12,570 or above, the most tax efficient way to pay yourself for 2025/26 is likely to be:

• Salary of £12,570

• Additional amounts as dividends (which are subject to dividend tax rates which are generally lower than personal income tax rates)

  
  

If you are the sole employee then there will be employers national insurance due but this will be offset by corporation tax savings. If you employ more than one person then it is likely that you will qualify for the National Insurance Employer's Allowance.

Taking a basic salary is beneficial as it will:

• Give you a qualifiying year for state pension purposes

• Utilise your personal tax-free allowance

• Is an allowable expense for corporation tax purposes

• Will give rise to little to no national insurance contributions

  
  

Note that you can only take dividends when the company has appropriate reserves. If your company is in a loss making position this will not be an option.