- For most single-director companies in 2025/26, the efficient mix is a £12,570 salary (covering the personal allowance) with the remaining profit taken as dividends after Corporation Tax. Dividends avoid National Insurance and are taxed at 8...
Try it yourself
In detail
The logic is to use your cheapest allowances first, then take the rest in the form that carries the least tax.
A £12,570 salary uses the personal allowance, attracts no income tax, keeps your National Insurance record intact, and is deductible against Corporation Tax. Above that, dividends beat extra salary, because salary attracts employee and employer National Insurance while dividends attract neither. Dividends are then taxed at 8.75% up to £50,270 of total income, 33.75% to £125,140, and 39.35% above.
Two things change the optimum. If your company can claim Employment Allowance (most single-director companies cannot), a slightly higher salary becomes attractive. And if you do not need all the cash, leaving profit in the company or making a pension contribution can beat extracting it. The optimal director salary guide covers the edge cases.