This article provides updated guidance on the most tax-effective directors salary and dividends for 2026/27. It is based on the proposed changes announced in the 2025 Autumn Budget.
Additionally, if you’re looking for advice on the current tax year (2025/26), you can find that information here.
Tax Rates and Allowances for 2026/27
The following rates apply for taxpayers in England, Wales, and Northern Ireland from 6 April 2026:
However, Scottish income tax bands differ and are not covered in this post.
Overview - Most tax effective director's salary and dividends for 2026/27
For many company directors/shareholders, paying a modest salary and the remainder as dividends continues to be the most tax-efficient way to extract profits. Essentially, the reasons are as follows:
The most tax effective director's salary and dividends for 2026/27
Our calculations for the most tax effective director’s salary and dividends for 2026/27 assume the following:
Option 1
If you can’t claim the NI Employment Allowance (e.g. you're the sole director), it’s usually most efficient to take a salary up to the Employer’s NI threshold, now £6,708 per year (£559 per month).
Furthermore, this threshold is lower than the Employee's National Insurance threshold which amounts to £12.570 per annum.
As a result, dividends of £43,562 are paid without any higher rate tax (the basic rate band of £50,270 less salary of £6,708).
Therefore, taking this amount as dividends, you'll have a tax liability of £3,999 which is detailed below:
Option 2
If you're qualify to claim the £10,500 NI Employment Allowance (e.g. a spouse or family member also works in the company), you can pay yourself a full salary up to £12,570, tax- and NI-free
As a result, paying dividends of £37,700, results in exactly the same personal income tax liability of £3,999 shown above. It is calculated as follows:
However, being able to pay the higher salary of £12,570 means a greater corporation tax saving. As a result, the tax saved could be in excess of £1,400.
Alternative Profit Extraction Strategies
Although, you want to minimise your tax liability even further, you could consider the following:
Summary
Essentially, the core tax planning strategy of low salary complemented by dividends remains unchanged, Although clearly if you're a single director company you're worse off.
However there may be alternative methods of tax efficient profit extraction available - for example investing in VCT's. This could be advantageous if you have retained profits in your company.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.