How the mix works, step by step
- Take a modest salary. A salary around £12,570 uses your personal allowance and can preserve your state pension record, while keeping employer National Insurance low or nil.
- Pay the corporation tax. Dividends come from profit after corporation tax, so the company pays its tax first.
- Take dividends from profit. The first £500 of dividends is tax free, then dividends are taxed at 8.75%, 33.75% or 39.35% depending on your band.
- Keep the paperwork. Each dividend needs a board minute and a dividend voucher, and there must be enough retained profit to cover it.
Why the split matters
Because dividends carry no National Insurance, shifting reward from salary to dividends usually lowers the overall tax, once the company's corporation tax is taken into account. The exact best point depends on your profit level, other income and the thresholds, so it is worth setting deliberately rather than guessing.
Paying yourself the most efficient way?
The ideal salary and dividend split changes with your profit and the thresholds. TaxTune sets the most efficient mix for your company, handles the paperwork, and files both company and personal returns.
Let us optimise how you pay yourself
We work out the best salary and dividend mix for your company, produce the paperwork, and file everything correctly. Fixed fee, and we show you the saving.
Frequently asked questions
How do company directors pay themselves?
Most take a small salary, often around the £12,570 personal allowance, plus dividends from company profit. The mix is usually more efficient than a full salary because dividends carry no National Insurance.
What salary should a director take?
Many directors take a salary around the personal allowance or National Insurance threshold, which keeps tax and employer National Insurance low while preserving a state pension record. The best figure depends on your circumstances.
Do I pay National Insurance on dividends?
No. Dividends do not attract National Insurance, which is a large part of why a salary and dividend mix is efficient for directors.
How much dividend is tax free?
The first £500 of dividends each year is tax free through the dividend allowance. Above that, dividends are taxed at 8.75%, 33.75% or 39.35% depending on your income band.
Can I pay dividends if the company has no profit?
No. Dividends must come from retained profit after corporation tax. Paying without sufficient profit can be reclassified by HMRC as salary or a loan.