If you run a limited company in Surrey, Kent or Sussex, the way you pay yourself has a direct bearing on how much tax you pay. The right combination of salary and dividends can save thousands of pounds a year — but the optimal split changes every April as tax thresholds shift. Here is the picture for 2026/27.
Why salary and dividends?
As a company director, you can pay yourself a salary (subject to income tax and NI) and dividends (distributions from after-tax profits, taxed at lower rates with no NI). The standard approach for most owner-managed businesses is a modest salary and the balance as dividends.
The optimal salary for 2026/27
For the 2026/27 tax year, the most commonly recommended salary is £12,570 — the personal allowance. At this level no income tax is due and you build a State Pension qualifying year. If your company does not qualify for the Employment Allowance (e.g. sole director only employee), the salary is often set at £5,000 to avoid triggering employer NI.
Dividend tax rates for 2026/27
- Basic rate: 10.75% on dividends within the basic rate band
- Higher rate: 35.75% on dividends in the higher rate band
- Additional rate: 39.35% on dividends above £125,140
A tax-free dividend allowance of £500 applies before these rates.
The planning opportunity
For a director with no other income, the most tax-efficient approach is typically: salary of £12,570, followed by dividends up to the top of the basic rate band (£50,270). This keeps the effective overall rate considerably below what an equivalent salary would attract. The picture is more complex with a spouse shareholder, other income sources, or insufficient retained profits.
A note on timing
Dividends must be declared correctly and supported by board minutes. They can only be paid out of retained profits — if your company has insufficient retained profits, any payment may be treated as a salary, attracting the corresponding tax and NI.
Talk to us about your situation
Our chartered accountants work with small businesses, landlords and contractors across Surrey, Kent and Sussex. Get in touch for a free initial consultation.
