| Dividends (UK resident) | £500 tax-free, then 10.75% / 35.75% / 39.35% |
| Personal allowance | £12,570 |
| Employer National Insurance | 15% from £5,000 salary a year |
| Director's loan not repaid | s455 tax 35.75% (loans from 6 April 2026) |
| UK withholding tax on dividends | none |
Four routes out of the company
A limited company is a person in its own right. The money in its account belongs to it, not to you, even if you hold all the shares. To get it to you there are four routes: a salary as director, a dividend as shareholder, a loan from the company to you, or a company contribution to your pension.
The difference lies in where tax falls. Salary and pension contributions reduce the company's profit and so its corporation tax, 25 percent at the main rate and 19 percent for small profits up to £50,000. Dividends are paid out of profit after corporation tax. A loan is at first not an extraction at all for tax, and that is exactly what makes it dangerous.
The routes compared (UK resident)
The rates apply to the 2026/27 tax year (6 April 2026 to 5 April 2027) and to England, Wales and Northern Ireland. Scotland has its own income tax rates.
| Route | For the company | For you |
|---|---|---|
| Salary | deductible expense; 15% employer contributions on the part above £5,000 | income tax 20 / 40 / 45% above the personal allowance; 8% employee contributions between threshold and upper limit, 2% above |
| Dividend | out of profit after corporation tax; no contributions | £500 free, then 10.75 / 35.75 / 39.35%; no National Insurance |
| Loan | s455 tax 35.75% if not repaid within 9 months of year end; refundable after repayment | from £10,000 a benefit at the official rate of 3.75% if no interest is paid |
| Employer pension contribution | deductible if total remuneration is reasonable | tax-relieved up to the £60,000 annual allowance |
GOV.UK: Tax on dividends, Income Tax rates, Rates and thresholds for employers 2026 to 2027, Director's loans, HMRC official rates; CTA 2010 s455; HMRC BIM46035
Salary: deductible, with contributions
A salary is a deductible expense for the company as long as it is reasonable for the work. HMRC disallows the deduction if the amount follows family ties or shareholder status rather than the work. If you pay yourself a salary as director, you need UK payroll: the company must register as an employer and deduct and pay over income tax and National Insurance.
In 2026/27 the company pays 15 percent employer contributions on every pound of salary above £5,000 a year. The Employment Allowance, which waives up to £10,500 of those contributions, is not available to a company whose sole director is also its only employee liable to contributions. For the classic one-person company a high salary is therefore rarely the cheapest choice. A salary within the personal allowance, by contrast, reduces profit without income tax for you. How payroll is set up is under UK Payroll.
Dividend: out of taxed profit, without contributions
A company may only pay dividends out of distributable profits, meaning accumulated profits after corporation tax. The directors resolve them, and that must be minuted. If the company pays more than it has in profits, the excess is usually treated as a loan to you and must be repaid.
If you live in the UK, the first £500 of dividends is tax-free. Above that, in 2026/27, 10.75, 35.75 or 39.35 percent applies depending on your band. No National Insurance arises on dividends. The usual mix for owner-directors living in the UK is therefore a low salary plus dividends; where it stops paying depends on your other income and the company's corporation tax band.
Take money out of the company that is neither salary nor dividend and you owe it to the company. If the loan is not repaid nine months after the end of the accounting period, the company pays a special s455 charge. By law its rate follows the upper dividend rate of the year the loan was made: for loans in 2026/27, 35.75 percent. The GOV.UK page still says 33.75 percent; the legislation decides. The tax comes back after repayment, the interest on it does not. And repaying just before the deadline and drawing again straight afterwards does not help: the law catches it.
Pension: the underrated route
If the company pays into a registered pension for you as director, the contribution is a deductible expense for the company as long as your total remuneration is reasonable for the work. For you, tax relief on pension contributions is limited by the £60,000 annual allowance.
For someone who lives in the UK and wants to stay, it is often the most efficient route. If you plan to move back home later, check first how your country of residence will treat the later payout.
If you live outside the UK
Then the picture turns around. The UK withholds no tax on dividends, and a non-resident's UK tax on dividends is limited to tax deducted at source, which is nil. The dividend reaches you untouched and is taxed at home under your country's rules. More in UK dividend withholding tax.
A director's salary is different: under the UK's treaties the UK may typically tax fees you receive as director of a UK company. Your country of residence then usually credits the UK tax against its own.
The more important question, though, is another one: if you run the company from home, it may become fully taxable there, and then the choice between salary and dividend suddenly becomes a question of your home country's law. That is covered in detail in non-resident directors.
Frequently asked questions about salary and dividends
Do I have to pay myself a salary as director?
That is a planning question. Whether a salary makes sense, and at what level, depends on where you live, your other income and the company's corporation tax band.
How often may the company pay dividends?
As often as the directors resolve, as long as there are distributable profits and the resolution is minuted.
What if I took more dividend than there was profit?
Then the excess usually counts as a loan to you and must be repaid, with all the s455 consequences.
Do I pay UK tax on dividends if I live abroad?
No. UK dividends go abroad without deduction, and as a non-resident you owe no UK tax on them. They are taxed where you live.
Sources: GOV.UK: Tax on dividends; legislation.gov.uk: Income Tax Act 2007, s. 8 (dividend rates); legislation.gov.uk: Corporation Tax Act 2010, s. 455; GOV.UK: Director's loans; HMRC: Beneficial loan arrangements, official rates; HMRC: Rates and thresholds for employers 2026 to 2027; GOV.UK: Claim Employment Allowance; HMRC Business Income Manual BIM46035 and BIM47105; GOV.UK: Annual allowance; GOV.UK: HS300 Non-residents and investment income (2026)
