Paying yourself from a limited company

Most people who own and run their own company pay themselves through a combination of a salary, run through payroll, and dividends paid out of the company's profits after corporation tax. The two are taxed in different ways, so the right balance depends on the company's profits, your other income and several smaller rules, and there is no single salary figure that suits every director. This guide explains how each route works so you can have a better informed conversation with an accountant. None of it is tax advice; it is general information only.

The ways money leaves a company

GOV.UK lists three main ways to take money out of a limited company: salary, expenses and benefits; dividends; and directors' loans. If you pay yourself a salary, "you must register the company as an employer", even if you are its only director. Dividends are payments to shareholders, and "a dividend is a payment a company can make to shareholders if it has made a profit." Anything you take that is neither salary nor dividend, nor a repayment of money you put in, is treated as a loan, which our guide to director's loan accounts explains.

How a salary is taxed

A salary is processed through payroll, where income tax and employee National Insurance are deducted and the company pays employer National Insurance on top. HMRC's guidance says that what a company spends "in remunerating its employees and directors" is "normally allowable" when working out its profits, so salary reduces the company's corporation tax.

Directors are a special case for National Insurance. GOV.UK says directors "pay National Insurance on annual income from salary and bonuses over £12,570", and contributions are worked out on annual earnings rather than each pay period.

Salary thresholds for 2026/27 (annual figures)
Threshold	Amount	What happens
Lower earnings limit	£6,708	Earnings above this can count towards your National Insurance record
Secondary threshold	£5,000	Employer NI at 15% on earnings above this
Primary threshold	£12,570	Employee NI at 8% on earnings above this
Upper earnings limit	£50,270	Employee NI falls to 2% above this

How dividends are taxed

Dividends are paid from what is left after corporation tax. GOV.UK says "you cannot count dividends as business costs when you work out your Corporation Tax", and that a company "must not pay out more in dividends than its available profits from current and previous financial years." Each dividend needs a directors' meeting, minutes and a dividend voucher.

In your own hands, dividends within your personal allowance are tax free, the first £500 above that is covered by the dividend allowance, and the rest is taxed at 10.75%, 35.75% or 39.35% depending on your band. Our guide on how dividend tax works covers this in more detail, and our dividend tax calculator gives a rough figure.

What shapes the mix

Because salary and dividends interact with so many rules, the balance that works for one director may not suit another. The main factors are:

the company's profit, since corporation tax is 19% on profits under £50,000 and 25% over £250,000, with marginal relief in between
whether anyone else is on the payroll, because GOV.UK says that if a company has only one director, they must not be the only employee liable for employer National Insurance if the company wants the Employment Allowance
your National Insurance record, since LITRG explains that earnings above the lower earnings limit can count towards the State Pension even when no contributions are paid
your other income, such as a job, pension or rent, which uses up your personal allowance and bands
where you live, because Scottish taxpayers pay different rates on salary but the same dividend rates as the rest of the UK
how much you need, and whether profits can be left in the company

Our guide to employer National Insurance explains the allowance, and our page on accountants for limited companies covers the wider work.

Why we do not suggest a salary figure

You will see articles quoting an ideal director's salary, but the right figure depends on all of the factors above and can change when rates or your circumstances change. An accountant can model the options against your actual profits. If you would like help finding one, we read every enquiry and, where we can, put you in touch with a local accountant through our enquiry form.

Common questions

What salary should I pay myself as a company director?

There is no single figure that is right for every director. It depends on the company's profits, whether it employs anyone else, your other income, your National Insurance record and where you live, so it is worth asking an accountant to compare the options for your own situation.

Do I need to run payroll if I am the only director?

If you pay yourself a salary, yes. GOV.UK says you must register as an employer even if you are only employing yourself, for example as the only director of a limited company, and you must register before the first payday.

Can my company pay dividends if it made a loss this year?

Only if it has enough available profits overall. GOV.UK says a company must not pay out more in dividends than its available profits from current and previous financial years, so profits kept from earlier years can count, but a company with no available profits cannot pay a dividend.

Are dividends taxed less than salary?

GOV.UK says directors pay National Insurance on salary and bonuses, and dividends have their own lower rates, but dividends come out of profits that have already paid corporation tax, while salary is normally deductible for the company. Which works out cheaper depends on the figures.

Sources for the figures on this page

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