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Limited company owner asks
How much can I pay myself from my company without paying higher rate tax?
Acumenica answers:
The quick answer is:
For the 2026/27 tax year, a common starting point is:
£1,047.50 pcm salary — £12,570 per year
Approximately £3,141.67 pcm dividend — £37,700 per year
That gives you total annual income of £50,270 before personal dividend tax, without entering the higher dividend tax band.*
This assumes you have no other income, receive the full Personal Allowance and your company has sufficient profits available to pay the dividends. The monthly dividend figure is rounded: keep the annual total within £37,700. Employer’s National Insurance may also be payable by the company.
The more detailed answer is:
How much you can pay yourself, and in what combination, will depend on factors such as your other income, your company’s profits and whether it qualifies for Employment Allowance.
The figures below apply to the tax year 6 April 2026 to 5 April 2027.
Income Tax on salary
Your standard Personal Allowance is £12,570. Above this, salary is taxed differently depending on where you live.
For taxpayers in England, Wales and Northern Ireland, the bands are:
| Band | Annual income | Rate |
|---|---|---|
| Basic rate | £12,571–£50,270 | 20% |
| Higher rate | £50,271–£125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Your Personal Allowance reduces by £1 for every £2 of adjusted net income above £100,000, disappearing entirely at £125,140. This affects the effective tax rate within that range.
For Scottish taxpayers, salary and most other non-savings, non-dividend income are taxed using these bands:
| Band | Annual income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter rate | £12,571–£16,537 | 19% |
| Basic rate | £16,538–£29,526 | 20% |
| Intermediate rate | £29,527–£43,662 | 21% |
| Higher rate | £43,663–£75,000 | 42% |
| Advanced rate | £75,001–£125,140 | 45% |
| Top rate | Over £125,140 | 48% |
The same Personal Allowance taper applies. Scottish salary tax bands do not apply to dividends, which are taxed under UK-wide rules.
Dividend taxation also has its own rates
For 2026/27, the dividend allowance is £500. Dividends covered by any unused Personal Allowance are also tax-free.
Above those allowances, the rates are:
| Dividend tax band | Rate |
|---|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Dividends sit on top of your other income when working out which bands apply. The £500 dividend allowance still uses part of your tax band; it does not increase the £50,270 threshold.
Salary
A salary of £12,570 per year, or £1,047.50 per month, is a common starting point. Assuming you have no other income and your full Personal Allowance is available, this attracts no personal Income Tax or employee’s National Insurance.
However, employer’s National Insurance normally starts once a director’s annual salary exceeds £5,000, at a rate of 15%. On a £12,570 salary, the company’s annual employer’s NI would therefore be £1,135.50, before Employment Allowance.
Eligible employers can claim Employment Allowance of up to £10,500 against their employer’s NI bill. Where sufficient allowance remains available, this can cover the NI on the director’s salary.
A company cannot claim if its only director is also its only employee liable for employer’s Class 1 NI. Simply having two employees is not enough: the additional employee’s earnings must trigger employer’s NI liability, and the company must meet the other eligibility conditions.
If avoiding employer’s NI is the priority, the annual salary limit is £5,000, approximately £416.67 per month. However, this is below the £6,708 Lower Earnings Limit for 2026/27, so it would not normally build a qualifying National Insurance year through that employment alone.
A salary of £6,708, or £559 per month, reaches that earnings limit but creates £256.20 of annual employer’s NI before any allowance. The right salary therefore needs to balance company costs, Corporation Tax relief and your personal circumstances.
Dividend
Once you’ve established your salary, you can calculate how much dividend fits within the remaining basic rate band.
Assuming no other income and a full Personal Allowance:
| Annual salary | Maximum dividend before higher dividend tax |
|---|---|
| £5,000 | £45,270 |
| £6,708 | £43,562 |
| £12,570 | £37,700 |
Each combination totals £50,270. With the £12,570 salary option, the first £500 of dividends is covered by the dividend allowance and the remaining £37,200 is taxed at 10.75%, giving a £3,999 dividend tax bill. Avoiding higher rate tax does not mean all the income is tax-free. These figures are calculated using the 2026/27 allowances and bands.
Your company must have sufficient distributable profits, after allowing for Corporation Tax, and dividends must be properly declared and documented. Having money in the bank does not automatically mean it is available as a dividend.
Remember these figures apply to each individual. Where there are two or more directors/shareholders, each person’s position must be calculated separately, and dividends must follow the rights attached to their shares.
Since tax rules can, and do, change, you should always contact a tax professional who can provide advice based on your specific financial situation and the latest regulations. Acumenica’s tax team can be contacted by completing the form on the Contact Us page.
