- A low salary plus dividends is still the most tax-efficient mix for most directors.
- Dividend tax rose two points in April 2026, to 10.75% basic and 35.75% higher.
- Employer pension contributions escape corporation tax, NI and dividend tax.
Of all the tax-efficient ways to take money out of a limited company, the strongest for most directors in 2026/27 is a blend: a low salary to use your personal allowance, dividends to avoid National Insurance, and tax-deductible employer pension contributions. A limited company accountant can set and run that mix for your profit level.
This guide covers each extraction method on the 2026/27 numbers, including what changed in April.
What’s the most tax-efficient way to take money out of a limited company in 2026/27?
For most owner-directors, the most tax-efficient way to take money out of a limited company is a small salary set around your personal allowance, dividends drawn from post-tax profit, and employer pension contributions that the company deducts before corporation tax.
This works because each method is taxed differently. Salary is deductible for the company but attracts income tax and National Insurance. Dividends avoid National Insurance but come out of profit that’s already paid corporation tax, and pension contributions sidestep both, which is why they’ve become more attractive since April.
No single method wins on its own. The skill is combining them so each pound leaves the company through the lowest-tax door available to you that year, and our guide to salary vs dividends covers how to set that split.
What changed for salary and dividends in 2026/27?
The 2026/27 changes mean a director who copies last year’s plan is almost certainly paying more tax than they need to. Three things moved.
Dividend tax rates rose from 6 April 2026. The basic rate went from 8.75% to 10.75%, the higher rate from 33.75% to 35.75%, and the additional rate stayed at 39.35%. The £500 dividend allowance is unchanged.
The frozen thresholds quietly make this worse. The £12,570 personal allowance and the £50,270 higher-rate threshold are frozen until April 2031, so wage and profit growth pushes more of your income into the higher band each year. That fiscal drag now bites harder because the higher dividend rate sitting above it is 35.75%, up from 33.75%.
| Income type | 2025/26 rate | 2026/27 rate |
|---|---|---|
| Dividend basic rate | 8.75% | 10.75% |
| Dividend higher rate | 33.75% | 35.75% |
| Dividend additional rate | 39.35% | 39.35% |
| Dividend allowance | £500 | £500 |
Be honest with yourself about what this means. A mix of salary and dividends still beats taking everything as salary for most directors, but the gap has shrunk. At lower profit levels, once you subtract accountancy fees, the advantage over operating as a sole trader is now slim.
How much salary should a director take in 2026/27?
The most common tax-efficient director salary in 2026/27 is £12,570, because it uses your full personal allowance without triggering income tax. The best figure depends on whether your company can claim the Employment Allowance.
Three salary levels are worth understanding:
- £12,570 (the personal allowance). No income tax for you and the salary is deductible for the company. If you’re the only person on the payroll, the company pays 15% employer National Insurance on the slice above the £5,000 secondary threshold, which is roughly £1,136 a year, and you can’t claim the Employment Allowance as a sole director with no other employees.
- £6,708 (the Lower Earnings Limit). This is the lowest salary that still counts as a qualifying year towards your State Pension, while keeping employer National Insurance to a minimum. Directors who want to protect their pension record without much NI often land here.
- £5,000 (the secondary threshold). Below this the company pays no employer National Insurance at all, but you don’t earn a State Pension qualifying year, so most directors avoid it unless they already have enough qualifying years.
If you employ at least one other person, your company can usually claim the £10,500 Employment Allowance, which wipes out the employer National Insurance on a £12,570 salary entirely. That’s why the right salary is a decision rather than a default.
Worth knowing: if your spouse genuinely works in the business and is paid above £5,000, you may be able to claim the Employment Allowance, but only where the role and pay are real and documented.
You can read more in our guide to the personal tax allowance in the UK, and Scottish directors should check the separate Scottish income tax bands, which change how salary is taxed north of the border.
How much tax do you pay taking £50,000 out of your company?
Take a director who pays themselves a £12,570 salary and tops up to £50,000 of total income with dividends. The salary is covered by the personal allowance, so the dividend maths is where the tax lands.
Here’s how the roughly £37,430 of dividends is taxed in 2026/27:
| Step | Amount | Tax |
|---|---|---|
| Salary (covered by personal allowance) | £12,570 | £0 |
| Dividend allowance | £500 | £0 |
| Dividends in basic-rate band at 10.75% | around £36,930 | around £3,970 |
| Total personal tax | £50,000 total income | around £3,970 |
So a director extracting about £50,000 keeps the large majority of it, with roughly £3,970 going to dividend tax. Push total income past £50,270 and every extra pound of dividend is taxed at 35.75% instead of 10.75%, which is the jump that catches directors out.
Remember the hidden layer underneath. Those dividends come from profit that already paid corporation tax at 19% on profits up to £50,000, rising through marginal relief to 25% above £250,000.
When you stack both taxes together, the true cost of a dividend pound is higher than the headline 10.75% suggests. That’s exactly why pensions and timing matter.
Are pension contributions a tax-efficient way to extract profit?
Employer pension contributions are now one of the most tax-efficient ways to take value out of your company, because the company deducts them before corporation tax and you pay no income tax, National Insurance or dividend tax on the way in.
The annual allowance for 2026/27 is £60,000, covering all contributions from you and the company combined. You can carry forward unused allowance from the previous three tax years if you were a pension scheme member in those years.
Two limits to watch:
- Tapering for high earners. If your adjusted income tops £260,000 and your threshold income tops £200,000, the £60,000 allowance reduces by £1 for every £2 of adjusted income above £260,000, down to a £10,000 floor.
- The money purchase annual allowance. Once you start flexibly drawing a defined contribution pension, your annual allowance for further contributions usually drops to £10,000.
For a director who doesn’t need every pound today, routing surplus profit into a pension can be more efficient than drawing it as a dividend and paying 10.75% or 35.75%. It also keeps the money invested for retirement, though you can’t access it until at least 55, rising to 57 from 2028.
Our guide to pension contributions through your company covers how to set one up and what counts towards the allowance.
Is a director’s loan a tax-efficient way to take money out?
A director’s loan can give you short-term access to company cash, but it’s a timing tool rather than a tax-free extraction method, and getting it wrong is expensive.
When the S455 charge applies
If your loan account is overdrawn at your year-end and still overdrawn nine months and one day later, the company pays the S455 charge on the outstanding balance.
For loans made on or after 6 April 2026 the rate is 35.75%, up from 33.75%, because it tracks the higher dividend rate. Loans made before that date stay at 33.75%.
S455 is refundable once the loan is repaid, released or written off, but the cash can sit with HMRC for over a year before you get it back, so it’s really a cash-flow tax.
One practical wrinkle for 2026/27: HMRC’s corporation tax online service isn’t expected to reflect the 35.75% rate until 6 April 2027, so companies filing before then may need to amend the return later.
The £10,000 benefit-in-kind threshold
Watch the £10,000 mark too. If your loan exceeds £10,000 at any point in the tax year and you pay no interest, or interest below HMRC’s official rate, it becomes a taxable benefit in kind.
That means a P11D for the director and a Class 1A National Insurance cost for the company. For the full mechanics, see our guide to director loans and S455.
Which business expenses and benefits reduce your tax?
Claiming legitimate business expenses is the simplest form of tax-efficient profit extraction, because genuine costs reduce your taxable profit and therefore your corporation tax bill before any money reaches you personally.
What counts as an allowable expense
Allowable costs include things like equipment, software, business travel, professional subscriptions and a proportion of home-office use where you work from home.
Each pound of genuine expense saves corporation tax at your marginal rate: 19% on profits up to £50,000, 26.5% in the marginal relief band between £50,000 and £250,000, and 25% above that.
Benefits in kind are a narrower win
A company car, private health insurance or similar perks can be provided by the company, but most create a taxable benefit for you and a Class 1A National Insurance cost for the company, so the saving is rarely as large as it first looks.
Electric company cars remain the most efficient option, though their benefit-in-kind rates are climbing each year. If reducing the company’s tax bill is your priority, our guide on how to pay less corporation tax covers the company-level reliefs that sit alongside your personal extraction strategy.
What is the £100,000 personal allowance trap?
Crossing £100,000 of total income triggers one of the harshest quirks in the system, so timing your extraction around it can save thousands. Above £100,000 your personal allowance tapers away by £1 for every £2 of income, disappearing entirely at £125,140.
The effect is a 60% effective marginal rate on income between £100,000 and £125,140, because you lose allowance and pay tax on the extra income at the same time. A director who drifts just over £100,000 in dividends can end up worse off than one who stops a little below it.
This is where planning earns its keep. Splitting extraction across tax years, making a pension contribution to pull your income back under £100,000, or timing a dividend into the following April can all keep you out of the trap.
The right move depends on your wider income, which is why this is a conversation worth having before year-end, not after.
What can go wrong when you take money out of your company?
The biggest risk in tax-efficient profit extraction is getting the paperwork wrong and having HMRC reclassify what you’ve taken, which costs far more than paying slightly too much tax. A few mistakes come up again and again.
- Illegal dividends. You can only pay dividends out of available profits from current and previous financial years. Declare one without them and it’s unlawful: you may have to repay it, and HMRC can treat it as salary or as a director’s loan.
- Missing paperwork. Every dividend needs a board minute and a dividend voucher. Without them, a dividend can be challenged and reclassified.
- Unrepaid director’s loans. Drift past the nine-month-and-one-day deadline and the company pays the S455 charge, plus a possible benefit-in-kind bill above £10,000.
- Drawing more than the company can afford. A board minute declaring a dividend you can’t actually fund from the bank account is a compliance risk rather than a plan.
None of this is hard to get right, but it does need to be done consistently. This is exactly the kind of routine that slips when you’re running the business yourself.
How Sleek helps with tax-efficient profit extraction
The April 2026 rules changed the maths, and the difference between a good extraction plan and a default one is real money over a year. The right mix depends on your profits and your personal circumstances, and it’s a decision worth taking with a tax accountant who knows your numbers.
Sleek’s Limited Company Accountant service gives you a dedicated, qualified accountant who models your salary, dividend and pension split for the tax year ahead, factors in the Employment Allowance where it applies, and keeps the plan on track as your profit changes. AI handles the groundwork on your books and shows its working, and your accountant checks every number before anything is filed, so you can see exactly why each figure is what it is.
That same accountant keeps your dividend vouchers, board minutes and director’s loan records HMRC-proof. Because we also handle your personal return through our director tax return service, the strategy and the reporting stay joined up, so the dividends you take are reported correctly and nothing falls between the two.
Take money out of your limited company the tax-efficient way
FAQs on tax-efficient ways to take money out of a limited company
Can my accountant do this for me?
Yes. Planning your salary, dividend and pension split is a standard part of a limited company accountant’s job, and it’s worth doing before the tax year starts rather than after it ends. Sleek’s Limited Company Accountant service includes a dedicated accountant who plans your extraction for the year, prepares the dividend paperwork and files the returns that report it.
Do I have to do a Self Assessment if I take dividends?
Usually, yes. If your dividend income is over £10,000 you need to fill in a Self Assessment tax return, and if you already file one you must report all your dividends, whatever the amount. If your dividends are under £10,000 and you don’t file a return, you tell HMRC after 5 April and before 5 October instead. Our tax FAQs cover the other filing questions directors ask most.
When do I pay tax on dividends I take in 2026/27?
Dividend tax for 2026/27 is paid through Self Assessment, with the balance due by 31 January 2028. If your bill triggers payments on account, you’ll also pay towards the following year on 31 January and 31 July. Setting money aside as you take each dividend avoids a cash crunch in January.
How often can I pay myself dividends?
There’s no set limit for most small companies: directors can pay interim dividends whenever there’s enough available profit to cover them, and many take them monthly or quarterly. Each one needs its own directors’ meeting and minute, even if you’re the only director. You also need a dividend voucher for every shareholder paid.
Can I still take dividends if my company made a loss this year?
Yes, as long as profits retained from earlier years still cover the dividend once this year’s loss is taken off. A company can’t pay out more than its available profits from current and previous years. If losses have wiped out those reserves, salary or a director’s loan are the remaining routes, each with its own tax cost.
Can I charge my company interest on money I've lent it?
Yes. The interest is a deductible cost for the company and taxable savings income for you, so it can be an efficient way to take cash out of a company you’ve funded yourself. The company deducts 20% income tax before paying you and reports it to HMRC quarterly on a CT61 return. Your personal savings allowance of £1,000 (basic rate) or £500 (higher rate) can cover some or all of it, provided the rate you charge is commercial.
What's the most tax-efficient way to take money out when I close my company?
For a solvent company, retained profits taken out through a members’ voluntary liquidation are usually taxed as a capital gain rather than as dividend income. If you qualify for Business Asset Disposal Relief, the rate is 18% for disposals from 6 April 2026 on up to £1 million of lifetime gains, compared with 35.75% or 39.35% on the same money taken as dividends. Anti-avoidance rules can treat it as income instead if you start a similar business soon afterwards, so plan the exit before you close, and Sleek’s accountants can handle the BADR claim for you.
