If you're a company director wondering how much to pay yourself in 2026/27, here's what's changed and what hasn't. The headline this year: dividend tax rates have gone up by two percentage points for basic and higher rate taxpayers. The personal allowance, tax bands, dividend allowance and National Insurance rates are otherwise unchanged. So the strategy stays the same — but the cost of getting it wrong is a little higher.
Here's a clear, no-jargon guide to the most tax-efficient way to split your salary and dividends this year.
Step 1: Start With the Right Salary
Single-director companies (no Employment Allowance)
- Recommended salary: £12,570 a year (£1,047.50 a month)
- Employer National Insurance: yes – 15% on pay above £5,000, about £1,135 for the year
- Employee National Insurance: none (it starts at £12,570)
Why this works: you still get full corporation tax relief, qualify for the state pension, and it keeps things simple. Yes, you pay some employer National Insurance, but it's outweighed by the tax savings.
Employment Allowance isn't available if the company's only director is also the only employee paid above the secondary threshold, which is why single-director companies usually can't use it.
Multi-director or multi-employee companies (eligible for Employment Allowance)
- Recommended salary: £12,570 a year
- Employer National Insurance: fully offset by the £10,500 Employment Allowance
Why this works: you get all the benefits of the higher salary without paying a penny in National Insurance.
Step 2: Top Up With Dividends
Once you've set your salary, you can take the rest of your income through dividends. Here's how to structure it based on your personal goals.
Option 1: Pay no tax at all
- Salary: £12,570
- Tax-free dividend allowance: £500
- Total annual income: £13,070
- Monthly drawings: £1,089.17
- Tax to pay: £0
Perfect for low-income years, testing a new venture, or building up reserves rather than extracting cash.
Option 2: Stay in the basic rate band
- Salary: £12,570
- Taxable dividends: up to £37,200 (after the £500 allowance)
- Dividend tax: 10.75% = £3,999 a year
- Total annual income: £50,270
- Monthly drawings: £4,189.17
- Tax to pay: £333.25 a month
This is the sweet spot for most business owners. The basic rate of dividend tax has risen from 8.75% to 10.75% this year — an extra £744 a year compared with last year at the same income. Still far cheaper than higher rate territory.
Option 3: Maximise income up to £100,000
- Salary: £12,570
- Dividends: £87,430
- Dividend tax: first £500 tax-free, £37,200 at 10.75% = £3,999, and £49,730 at 35.75% = £17,778
- Total tax: £21,777
- Total income: £100,000
- Monthly drawings: £8,333
- Tax to pay: about £1,815 a month
You're into higher rate territory, but you keep your personal allowance — which you start to lose above £100,000. The higher rate of dividend tax has risen from 33.75% to 35.75% this year. If you're regularly drawing at this level, pension contributions are worth a serious conversation.
What's Changed in 2026/27
The core strategy hasn't changed, but dividend tax has gone up:
- Basic rate dividend tax: 8.75% → 10.75%
- Higher rate dividend tax: 33.75% → 35.75%
- Additional rate dividend tax: 39.35% (unchanged)
Everything else — personal allowance (£12,570), basic rate band (up to £50,270), dividend allowance (£500), employer National Insurance rate (15%) and Employment Allowance (£10,500) — is the same as last year.
Final Thoughts
Whether you want to take home just enough to live tax-free, or you're drawing a six-figure income, the key is balancing salary and dividends sensibly. If you're a single-director company, accept the employer National Insurance and pay the £12,570 salary anyway — it still works out better in most cases.
If another employee is paid above the secondary threshold — a second director, or a spouse working in the business, for example — make sure you're claiming the Employment Allowance.
And if you're drawing anywhere near the basic rate ceiling, it's worth revisiting your numbers. Dividend tax is now more expensive than it was, and with income tax thresholds frozen until April 2031, more income falls into taxable bands every year. The right split for your company is something we look at as part of our accounting and tax work for directors.