Salary plus dividends — the classic Ltd setup. See what you actually keep.
Dividends are taxed differently from salary. You get a £500 tax-free dividend allowance (2026/27). Above that, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). Dividends use up your remaining tax bands after salary and other income — so your salary determines which dividend band you fall into.
Most accountants recommend paying yourself a salary up to the NI primary threshold (around £12,570) and taking the rest as dividends. This minimises employer NI (13.8%) and employee NI. The dividend rates are lower than salary tax+NI rates at every band, making this the most tax-efficient extraction for most small company directors. Always check with your accountant — the optimal split depends on your exact circumstances.
Yes. The company pays corporation tax (25% for profits over £250,000, 19% for profits under £50,000, marginal relief in between) before distributing dividends. So the effective combined rate is higher than the dividend rate alone — the company pays 19–25% first, then you pay dividend tax on what's left. This calculator shows the personal dividend tax only.
Keep board minutes recording each dividend declaration, a dividend voucher for each payment (date, amount, shareholder), and ensure the company has sufficient distributable reserves (retained profits after tax). Paying dividends when the company doesn't have the profits to cover them is unlawful.
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