If you run a one-person limited company, the most tax-efficient way to pay yourself in 2026/27 is a small salary of £12,570 plus dividends on top. On £50,000 of profit, that combination leaves you with about £38,862 in your pocket — an effective tax rate of roughly 22%.
This guide walks through why that split works, how much salary to take, how dividends are taxed this year, and a full worked example so you can see exactly where the money goes between your company's profit and your bank account.
The short answer: a small salary plus dividends
As a director, you can take money out of your company two ways: a salary (through payroll) and dividends (a share of the profit after corporation tax). Most solo directors are better off taking a modest salary and drawing the rest as dividends, because dividends are taxed at lower rates than salary and are not subject to National Insurance.
The salary does two useful jobs first: it uses your tax-free personal allowance, and it counts as a cost in the company, which reduces the profit that corporation tax is charged on. Dividends then take out what is left.
Why £12,570 is usually the right salary
£12,570 is the personal allowance for 2026/27 — the amount you can earn before income tax starts. Set your salary at that level and you pay no income tax on it, and no employee's National Insurance either, because the salary sits at the National Insurance primary threshold.
There is one cost to be aware of. Your company pays employer's National Insurance on the part of the salary above the £5,000 secondary threshold. For a one-person company on a £12,570 salary, that comes to £1,135.50 for the year. A company with a second person on the payroll could cancel this out with the Employment Allowance, but a sole director cannot claim it.
Even so, £12,570 is worth it — see the two reasons below.
Should you take a lower £5,000 salary instead?
A £5,000 salary would avoid the employer's National Insurance entirely, since it sits at the secondary threshold. It is a common suggestion, and it is worth understanding why the higher salary still comes out ahead.
Run both figures on £50,000 of profit and the £12,570 salary wins by about £462.80 a year. The reason is corporation tax relief: the extra salary is a deductible cost, so it lowers the company's corporation tax bill by more than the employer's National Insurance it triggers.
The £12,570 salary also protects your State Pension
The bigger reason to prefer £12,570 is your State Pension. A £5,000 salary is below the Lower Earnings Limit of £6,708 — and a year spent below that line does not count towards your State Pension record.
A £12,570 salary is comfortably above it, at no employee's National Insurance cost, so you bank a qualifying year for free. Over a working life, that is worth far more than the £462.80.
How dividends are taxed in 2026/27
Once the salary and corporation tax are dealt with, the rest of the profit comes out as dividends. Two figures matter this year:
- The first £500 of dividends is tax-free (the dividend allowance).
- Dividends within the basic-rate band are then taxed at 10.75%, after this April's increase to dividend tax rates.
Dividends can only be paid from profit the company actually has after corporation tax. Take more than that and HMRC treats it as a loan from the company to you, which brings its own tax charge — a separate trap worth understanding on its own.
A full worked example: £50,000 of profit
Take a one-person limited company with £50,000 of profit for the year, drawing all of it out the standard way. Here is the full picture, line by line:
- Profit: £50,000
- Salary: £12,570
- Employer's National Insurance on that salary: −£1,135
- Corporation tax (19% on profit): −£6,896
- Dividends drawn: £29,399
- Dividend tax: −£3,107
- Take-home: £38,862
Corporation tax is the line that moves the answer most, and it is easy to forget because it is paid by the company before any dividend can reach you. It is charged at the 19% small-profits rate on profits up to £50,000.
Add up the three taxes — employer's National Insurance, corporation tax and dividend tax — and the total tax is £11,138 on £50,000 of profit. That is an effective rate of about 22% (22.3% on this example).
Your own numbers will land somewhere different depending on your profit, whether you are VAT-registered, and how much you actually need to draw. The method stays the same: small salary, then dividends from the profit after tax.
Frequently asked questions
How should I pay myself from a limited company in 2026/27? For most solo directors, a salary of £12,570 plus dividends is the most tax-efficient approach. The salary uses your personal allowance and reduces corporation tax; dividends take out the profit after tax at lower rates than salary.
Is a £12,570 or £5,000 salary better? On £50,000 of profit the £12,570 salary wins by about £462.80 a year, because corporation tax relief on the larger salary outweighs the employer's National Insurance. £12,570 also keeps a qualifying year towards your State Pension; £5,000 does not.
How are dividends taxed in 2026/27? The first £500 is tax-free, and basic-rate dividends are then taxed at 10.75% following this April's increase. Dividends can only be paid from profit remaining after corporation tax.
What take-home does £50,000 of profit give? Drawing everything out on a £12,570 salary plus dividends, take-home is about £38,862, with total tax of £11,138 — an effective rate of roughly 22%.
Can I claim the Employment Allowance as a sole director? No. The Employment Allowance needs a second employee on the payroll, so a one-person company pays the employer's National Insurance on its director salary in full.
Work with us
Getting the salary and dividend split right for your own profit — and keeping it right as the business grows — is exactly the kind of thing we handle for founders. Book a call with Carr Accounting Studio and we will walk through your numbers for the year.
If you would rather start smaller, the free FounderTax check flags where you might be over- or under-paying in about two minutes.
General information, not advice. UK figures 2026/27 — they change, and your situation may differ. Written by David Carr, chartered accountant and founder of Carr Accounting Studio.