Director Pay and taking money out.
Salary, dividends, pension contributions and the director's loan account. These are the four ways money comes out of a limited company, and the order and mix matter for how much tax you pay.
Salary vs dividends
Compare salary, employer National Insurance and dividends together. The £5,000 employer threshold is below the £6,708 earnings limit for pension qualification.
Jump to section 02Not a static formula
Optimal split shifts each tax year. Thresholds move, other income changes, longer-term plans for the business matter.
Jump to section 03Pension as extraction
Employer pension contributions are CT-deductible, often the most efficient extraction route, especially inside the MR band.
Jump to section 04The S455 trap
Section 455 applies at 35.75% to loans made from 6 April 2026 that remain unpaid after the nine-month repayment period. Older loans use their original rates.
Jump to sectionThe Core Decision: Salary vs Dividends
Start with the profit available before your salary and employer National Insurance. Compare what reaches you after company tax, salary tax, National Insurance and dividend tax. A £12,570 salary is a useful comparison point, but higher salaries can produce more personal cash at some profits. A £5,000 salary avoids standard employer contributions but is below the £6,708 Lower Earnings Limit for 2026/27.
But this isn't a static formula. The optimal extraction strategy changes every tax year as thresholds shift, and it depends on your company's profit level, whether you have other income sources, your household tax position, and your longer-term plans for the business.
Beyond the Basics
- Pension contributions: Employer pension contributions are deductible from corporation tax, making them one of the most tax-efficient extraction methods, especially in the Marginal Relief band. The mechanics and year-end clearance rules are in the pension contributions timing guide.
- Bonus vs dividend: A bonus is deductible for Corporation Tax but attracts employer NIC; a dividend is NIC-free but not deductible. The dividend vs bonus guide walks through the arithmetic at each rate combination.
- Director's loan accounts: Cash taken beyond salary, valid dividends, expense repayments or money owed to you can create a director loan. Section 455 is 35.75% for loans made from 6 April 2026 and 33.75% for loans made from 6 April 2022 to 5 April 2026. Repay within nine months of the accounting period end to avoid payment of the charge, subject to the repayment rules.
- Timing: Dividend declarations can be timed across tax years to utilise allowances efficiently. A structured year-end planning review is the practical mechanism, not retrospective accounting.
Go Deeper
Salary vs Dividends in 2026 - Blue Jay Accountants
How UK company directors can compare salary and dividends, including National Insurance, dividend tax, Corporation Tax and cash extraction.
GuideCompany Pension Contributions for Directors
How employer pension contributions can reduce Corporation Tax, what directors need to check, and why timing before year-end matters.
GuideDirector Loan Account Guide
How director loan accounts work, including overdrawn balances, Section 455 tax, benefit in kind issues and clearing loans before deadlines.
Related Tools & Services
Work out your salary-and-dividend mix against your numbers.
We calculate the optimal salary, dividend and pension extraction for your profit level, marginal personal tax position and Director's Loan Account state, and put a written recommendation on the table.
Calculate your director pay extractionQuestions about director pay
What is the most tax-efficient way to pay myself as a director?
Compare the company and personal tax on the same available profit. The best salary can be above £12,570 and depends on profit, other income, Employment Allowance, pension contributions and how much cash you withdraw.
What is a director's loan account?
A director loan account records money owed between you and the company. Where Section 455 applies, the rate is 35.75% for loans made from 6 April 2026 and 33.75% for loans made from 6 April 2022 to 5 April 2026. Repayment within nine months of the accounting period end normally prevents payment of the charge, subject to anti-avoidance rules.
Can I take a higher salary instead of dividends?
Yes. Employer National Insurance is normally 15% above £5,000 in 2026/27; employee contributions start above £12,570 at 8%, falling to 2% above £50,270. Salary normally reduces taxable company profit. Those deductions can make a higher salary worthwhile, so compare the total tax before deciding.