As the director of a limited company, you have the flexibility to choose how you extract profits. The most common, and historically most tax-efficient, method is a combination of a low basic salary and dividends.
Why a Low Salary?
Taking a salary up to the Primary Threshold for National Insurance (which aligns closely with the Personal Allowance of £12,570 for 2026/27) avoids employee and employer NI. You can check these thresholds on our Dividend Tax Calculator or model business taxes on our Small Business Tax Calculator.
Frequently Asked Questions (FAQ)
Q: What is the most tax-efficient dividend split?
A: The most tax-efficient split generally involves taking a salary up to the secondary NI threshold (£12,570) and withdrawing the remaining profits as dividends.
Q: Do I pay National Insurance on dividends?
A: No, dividends are not subject to employee or employer National Insurance, which is why they are preferred over high salaries.
Q: What is the dividend tax-free allowance?
A: For the 2026/27 tax year, the dividend tax-free allowance is £500. Any dividend income above this is taxed at rates depending on your income tax band.