As a company director, knowing how to structure your salary and dividends can make a significant difference to your financial outcomes.
The best way to pay yourself through a limited company in 2026-27 is to take a low director’s salary, preferably below certain tax thresholds, and then top up your earnings with regular dividends.
Since tax thresholds and allowances (and sometimes rates) usually change at the start of each new tax year, it’s important to review your remuneration annually to ensure you’re paying yourself in the most tax-efficient manner.
In this guide, we’ll walk you through the key numbers, latest HMRC thresholds, and real-world scenarios – so you can confidently choose the most optimised tax structure to pay yourself through your limited company.
Key takeaways
- Taking a small director’s salary topped up with regular dividends from profits is the most tax-efficient way to pay yourself through a limited company.
- The most tax-efficient director’s salary in 2026-27 is either £5,000, £6,708, or £12,570. Each of these salary options aligns with specific National Insurance and tax thresholds.
- With careful planning and professional advice from your accountant or financial advisor, combining a salary with dividends can help you minimise your personal tax liability while also reducing your company’s Corporation Tax and employer National Insurance bills.
What’s the most tax-efficient way to pay yourself in 2026–27?
The most tax-smart strategy to pay yourself in 2026–27 is a blend of director’s salary and dividends, balanced so that you are still paying the correct amount of tax. As a director, your salary is subject to Income Tax and Class 1 National Insurance contributions (NICs). Dividends, on the other hand, are subject to lower rates of dividend tax based on Income Tax bands and are not subject to National Insurance.
Let’s look at what you will pay on the director’s salary and dividend income you take from your company in the 2026-27 tax year.
Income Tax rates and thresholds for directors in 2026-27
The standard tax-free Personal Allowance for the year is £12,570, which means that everyone with a salary pays no tax on this amount.
Your Personal Allowance will be reduced if you earn more than £100,000 in the tax year. Your Personal Allowance will be reduced by £1 for every £2 you earn above that amount. Therefore, your Personal Allowance will effectively be zero if you earn £125,140 or more in the year.
Income tax rates for directors
Income tax rates for directors are the same as those for any employee under PAYE in the UK. Above the Personal Allowance, you will pay the following Income Tax rates on your director’s salary if you live in England, Wales, or Northern Ireland:
- 20% (basic rate) – income up to £50,270.
- 40% (higher rate) – income between £50,271 and £125,140.
- 45% (additional rate) – income above £125,140.
If you live in Scotland, you will instead pay the following Scottish Income Tax rates on your director’s salary above the Personal Allowance (if applicable):
- 19% (starter rate) – income up to £16,537.
- 20% (basic rate) – income between £16,538 to £29,526.
- 21% (intermediate rate) – income between £29,527 to £43,662.
- 42% (higher rate) – income between £43,663 to £75,000.
- 45% (advanced rate) – income between £75,001 and £125,140.
- 48% (top rate) – income above £125,140.
These tax rates can change, but currently will not change in the next tax year.
National Insurance rates and thresholds for 2026-27
National Insurance rates and thresholds are the same across the UK. The rate of employee (primary) Class 1 National Insurance for the 2026-27 tax year is 8%. You will pay 8% primary Class 1 NICs on your director’s salary between £12,570 and £50,270. A rate of 2% will apply to the balance of earnings above that amount. Your company will also pay 15% employer’s (secondary) Class 1 NICs on your salary income above £5,000.
How dividend tax works
Dividends, the earnings paid out by a company, are taxed differently from income.
The 0% dividend allowance for 2026-27 is £500. Above this amount, any dividends you receive from your limited company will attract the following personal tax rates, based on whichever Income Tax band(s) your earnings fall into:
- 10.75% (basic rate) – income up to £50,270.
- 35.75% (higher rate) – income from £50,271 up to £125,140.
- 39.35% (additional rate) – income above £125,140.
To work out your tax band, you need to add your gross dividend income for the year to your other sources of income. This means you may have to pay more than one dividend tax rate (i.e. if you’re a higher-rate or additional-rate taxpayer).
While Income Tax rates in Scotland differ, this has no bearing on dividend tax. If you are a Scottish taxpayer, you will pay tax on dividends in accordance with the above thresholds.
What other ways can directors take money from their company tax-efficiently?
In addition to salaries and dividends, you may benefit from pension contributions, reimbursed expenses, or benefits in kind (like company cars or health insurance). However, each has its own tax implications.
Choosing your director’s salary: £5,000 vs £6,708 vs £12,570
The most tax-efficient director’s salary in 2026-27 is either £5,000, £6,708, or £12,570. These are based on the following thresholds for Class 1 National Insurance contributions (NICs) and the Personal Allowance:
- The NIC Secondary Threshold of £5,000 per year.
- The NIC Lower Earnings Limit of £6,708 for the year.
- The NIC Primary Threshold and standard Personal Allowance of £12,570 per year.
Unless you intend to take all your personal income as a salary rather than pay yourself a combination of salary and dividends, you should consider one of these options. Let’s take a look at each one in turn.
Option 1: £5,000 (below Secondary Threshold)
The Secondary Threshold is the point at which an employer must start paying employer NICs (secondary contributions) on their directors’ and employees’ wages. For the 2026-27 tax year, the Secondary Threshold is £5,000, which is £417 per month or £96 per week.
By paying yourself up to this amount through PAYE, your director’s salary will not be subject to Income Tax, employee NICs, or employer NICs. Moreover, you won’t have to register as an employer or operate PAYE unless any of the following applies to another director or employee in the company:
- Earning £129 or more a week.
- Receiving expenses and company benefits.
- Receiving a pension.
- Have another job.
- Receiving Jobseeker’s Allowance, Employment and Support Allowance, or Incapacity Benefit.
However, the downside of paying yourself a salary up to only £5,000 is that you won’t earn qualifying contributions on your National Insurance record for the year (unless you’re earning NI credits elsewhere, e.g. from another job).
Option 2: £6,708 (Lower Earnings Limit)
To protect your entitlement to the State Pension and benefits, the minimum you should pay yourself in 2026-27 is £6,708 (£559 per month, or £129 per week). This is the NIC Lower Earnings Limit (LEL).
You won’t be liable to pay Income Tax on your salary. Furthermore, you will not pay employee Class 1 National Insurance on this income, but you will still reap the benefits of paying. If you take a director’s salary below the LEL, you won’t earn NIC credits unless you make voluntary National Insurance contributions.
The company will be liable to pay 15% employer NICs on the portion of your salary between £5,000 and £6,708.
Option 3: £12,570 (Primary Threshold and full PA)
If your company is eligible to claim the Employment Allowance, it may be a smarter tax strategy to take a director’s salary up to the NIC Primary Threshold (PT) of £12,570 per year (£1,048 per month, £242 per week).
The Primary Threshold is the point at which employees and directors start paying Class 1 NICs on their wages. Currently, the PT aligns with the standard Personal Allowance, so you won’t pay any Income Tax on your director’s salary either.
Whilst your company will be liable to 15% secondary NICs on the portion of your salary between £5,000 and £12,570, you can use your Employment Allowance to reduce the company’s annual National Insurance liability by up to £10,500 for the year.
Check if you’re eligible to claim the Employment Allowance
Be aware that your company cannot claim the Employment Allowance if:
- You are the only director, and you do not employ any staff.
- Only one director or employee in the company is paid above the Secondary Threshold, and that employee is a company director.
- No directors or employees are paid above the Secondary Threshold.
Additional eligibility criteria apply. Read HMRC’s general guidance on the Employment Allowance to work out if your company can claim. Further guidance on single-director companies and Employment Allowance is also available.
Dividends: How to use dividends to maximise your take-home pay
Dividends are paid from company profits after tax. So, you need to deduct Corporation Tax from your business profits to determine how much is available to take as dividends. This is why HMRC charges lower personal tax rates on dividend income – to account for the tax the company has already paid on that income.
The amount of dividend income you can pay yourself will depend on:
- How much distributable profit your company has available (i.e. how much profit the company has left after accounting for Corporation Tax).
- What percentage of the company you own through shareholdings (e.g. if you own 100% of the shares, you are entitled to 100% of distributable profits).
- Whether you are trying to avoid entering a higher tax bracket.
When your annual personal income from all sources exceeds the Personal Allowance threshold of £12,570 and the dividend allowance of £500, your dividends will be subject to tax rates based on your Income Tax band(s). However, as mentioned, you won’t pay any National Insurance on your dividend income.
This means that unless you receive a director’s salary and/or taxable income from other sources, you can take up to £13,070 of dividends free from personal tax in 2026-27. Any amount above this threshold will be subject to the dividend tax rates outlined earlier in the article.
While dividend tax is tied to Income Tax bands, the rates are considerably lower, as companies pay Corporation Tax of 19% to 25% on their profits before issuing dividends to shareholders.
However, you will still pay less tax overall by combining a director’s salary and dividends instead of taking all your income as a salary. The tax and NIC savings will be more significant if you are a higher-rate or additional-rate taxpayer.
How much dividend can you take tax-free in 2026-27?
Your director’s salary is a tax-deductible business expense. This means your company will save Corporation Tax on whatever amount you decide to take.
Dividend payments cannot be claimed as a business expense. This is why dividends can only be paid to shareholders from profits after tax. However, the lower dividend tax rates and NIC savings usually compensate for this.
What if you have other income?
If you have other income, aside from the main company you are part of, this will affect how much of your dividends fall into each tax band, as all your income sources are combined to determine your total taxable income.
What if you have two limited companies?
If you had two limited companies, you would have two separate streams of dividends, but you would still have one personal tax band.
So, if you had two companies, each paying you dividends, each set of dividends would be taxed through the company, but both sources would fall under your personal tax rate. It is not possible to “split” your personal tax bands across multiple companies, as it is your total personal income as an individual.
Salary vs dividends for directors: UK profit scenarios
To demonstrate, here are two scenarios that a company could find itself in. These are based on a tax-efficient director’s salary topped up with dividends. We will then show you how this structure compares to taking all of your company’s available profits as a salary. This will give you an idea of the total amount of Corporation Tax and personal tax you may have to pay.
Example 1 – Company with annual taxable profits of £60,000
Suppose your company has taxable profits of £60,000 per year after deducting running costs and expenses (but before accounting for your salary).
If you pay yourself an annual director’s salary of £5,000 (the NIC Secondary Threshold), you could take up to £44,175 as dividends. This is the net profit the company would have available to distribute as dividends after paying your salary and Corporation Tax.
The table below shows how this would work in practice, including a breakdown of the total tax liability:
| Company Tax | Annual | Monthly | Weekly |
| Company profit before tax | £60,000.00 | £5,000.00 | £1,153.85 |
| Director’s salary | £5,000.00 | £417.00 | £96.00 |
| Class 1 employer NICs | £0.00 | £0.00 | £0.00 |
| Taxable profit | £55,000.00 | £4,583.33 | £1,057.69 |
| Corporation Tax at 19.68% (effective rate due to Marginal Relief) | £10,825.00 | £902.08 | £208.17 |
| Net profit available to be taken as dividends | £44,175.00 | £3,681.25 | £849.52 |
| Personal Tax | Annual | Monthly | Weekly |
| Director’s salary | £5,000.00 | £417.00 | £96.00 |
| Class 1 employee NICs | £0.00 | £0.00 | £0.00 |
| Income Tax | £0.00 | £0.00 | £0.00 |
| Gross dividend income | £44,175.00 | £3,681.25 | £849.52 |
| Tax on dividends | £3,881.00 | £323.42 | £74.63 |
| £7,570 at 0% (remaining Personal Allowance) | £0.00 | – | – |
| £500.00 at 0% (dividend allowance) | £0.00 | – | – |
| £36,105.00 at 10.75% | £3,881.00 | – | – |
| Gross pay | £49,175.00 | £4,097.92 | £945.67 |
| Take-home pay (net pay) | £45,294.00 | £3,744.50 | £871.00 |
By structuring your personal income this way, the total tax liability on the £60,000 profit would be £14,706. This comprises the Corporation Tax liability and personal tax on dividend income.
Taking a gross salary of £60,000 and no dividends
If you were to take the full £60,000 as a director’s salary, rather than paying yourself a combination of salary and dividends as above, the entire salary would be a tax-deductible expense for the company.
The personal tax liability on your salary would be £14,643.
This is because:
- Personal Allowance of 0% on the first £12,570 = £0.00
- Income Tax a 20% on £37,700 = £7,540
- Income Tax at 40% on the remaining £9,730 = £3,892
- Class 1 employee National Insurance contributions (8% between £12,570 and £50,270, then 2% on the remaining salary) = £3,211
This would leave you with a take-home pay of £45,357. However, the company would also have an employer’s NIC bill of £8,250. Consequently, the total tax liability of your £60,000 salary would be £22,893.
Compared to the total tax liability (Corporation Tax + dividend tax) due on the salary and dividend structure, you would be paying an extra £8,187 in tax by taking £60,000 as a salary instead. Therefore, it would be more beneficial to pay yourself an annual director’s salary of £5,000 (the NIC Secondary Threshold) and take £44,175 as dividends.
Example 2 – Company with annual taxable profits of £80,000
In this example, let’s assume your company has taxable profits of £80,000 after deducting running costs and expenses (but before accounting for your own salary).
If you pay yourself an annual director’s salary of £12,570 (the NIC Secondary Threshold), you could take up to £52,477 as dividends. This is the net profit the company would have available to distribute as dividends after paying your salary, employer NICs, and Corporation Tax.
The table below shows how this would work in practice, including a breakdown of the total tax liability:
| Company Tax | Annual | Monthly | Weekly |
| Company profit before tax | £80,000.00 | £6,666.67 | £1,538.46 |
| Director’s salary | £12,570.00 | £1,047.50 | £241.07 |
| Class 1 employer NICs | £1,135.00 | £94.62 | £21.84 |
| Taxable profit | £66,295.00 | £5,524.58 | £1,274.90 |
| Corporation Tax a 20.84% (effective rate due to Marginal Relief) | £13,818.00 | £1,151.50 | £265.73 |
| Net profit available to be taken as dividends | £52,477.00 | £4,373.08 | £1,009.17 |
| Personal Tax | Annual | Monthly | Weekly |
| Director’s salary | £12,570.00 | £1,047.50 | £241.70 |
| Class 1 employee NICs | £0.00 | £0.00 | £0.00 |
| Income Tax | £0.00 | £0.00 | £0.00 |
| Gross dividend income | £52,477.00 | £4,373.08 | £1,009.17 |
| Tax on dividends | £9,282.00 | £773.50 | £178.50 |
| £500 a 0% (dividend allowance) | £0.00 | – | – |
| £37,200 a 10.75% (portion of income within basic rate) | £3,999.00 | – | – |
| £14,777 a 35.75% (remaining dividends taxable at higher rate) | £5,283.00 | – | – |
| Gross pay | £65,047.00 | £5,420.58 | £1,250.90 |
| Take-home pay (net pay) | £54,630.00 | £4,552.50 | £1,050.58 |
By structuring your personal income in this way, the total tax liability on the £80,000 profit generated by the company would be £24,235. This comprises the Corporation Tax liability, employer NICs, and personal tax on dividend income.
Taking a gross salary of £80,000 and no dividends
If you were to take the full £80,000 as a director’s salary rather than a combination of salary and dividends, the entire salary would be a tax-deductible expense for the company.
The personal tax liability on your income would be £23,043.
This is because:
- Personal Allowance of 0% on the first £12,570 = £0.00.
- Income Tax at 20% on £37,700 = £7,540.
- Income Tax at 40% on the remaining £29,730 = £11,892.
- Class 1 employee National Insurance contributions (at 8% on salary between £12,570 and £50,270, then 2% on the remaining salary) = £3,611.
This would leave you with a take-home pay of £56,957. The company would also have an employer’s NIC bill of £11,250. Consequently, your £80,000 salary would have a total tax liability of £34,293.
Compared to the total tax liability due on the salary and dividend structure, you’d be paying an extra £10,058 in tax by taking £80,000 as a salary instead. Therefore, it would be more cost-effective to pay yourself an annual director’s salary of £12,570 (the NIC Secondary Threshold) and take £52,477 as dividends.
Benefits of taking a higher salary
You may want to consider accepting a higher salary in certain situations.
While many directors choose a low salary for tax efficiency, a larger PAYE salary can strengthen your position with mortgage lenders, who typically place more weight on guaranteed employment income than on dividends.
Increasing a salary can also enable higher pension contributions, as these must be supported by “relevant earnings.” In both cases, the additional tax cost may be justified by improved borrowing capacity or enhanced long-term retirement planning.
Do you need PAYE as a director?
If you are paying any kind of salary, then yes, you will need to register for PAYE as a director. This is the system HMRC uses to collect Income Tax and National Insurance contributions from employment income. A director’s salary is treated as employment income, even if you are the only employee of your company.
It is possible to avoid a salary and therefore not require PAYE, but this would be largely inefficient, as you would lose NIC benefits and flexibility in tax planning.
To pay directors’ and employees’ salaries, most companies must register as employers with HMRC and operate Pay As You Earn (PAYE) within their payroll. This will be necessary if you or any of your employees:
- Earn £129 or more per week
- Receive expenses and company benefits
- Receive a pension
- Have another job
- Received Jobseeker’s Allowance, Employment and Support Allowance, or Incapacity Benefit
If you need to pay any Income Tax or National Insurance on your salary, your payroll software will calculate the liability and make the necessary deductions through PAYE.
The company will be required to report your pay and deductions to HMRC on or before each payday, and then make the necessary payments, typically monthly. If your company can claim Employment Allowance, you will also claim it through PAYE.
Paying tax on dividends: when and how
Unlike salaries, dividends are not paid and taxed through PAYE. Instead, you will be responsible for separately declaring your dividend income to HMRC. To do so, you must register for Self Assessment, file a Self Assessment tax return after the end of the tax year, and pay any tax that you owe on these earnings directly to HMRC.
The deadline for filing a tax return and paying dividend tax is 31 January following the end of the tax year in which you receive the dividend income. For example, the deadline for the 2026-27 tax year is 31 January 2028.
Since there is a lengthy delay between receiving dividends and paying personal tax on this income, it’s worthwhile setting aside the tax in a high-interest savings account. This presents a good opportunity to make your income work even harder for you.
Alternatively, you could temporarily invest some or all of your Self Assessment tax in National Savings and Investments (NS&I) Premium Bonds. You won’t earn any interest, but you’ll automatically be entered into a monthly prize draw for a chance to win tax-free cash prizes. You can also withdraw your money at any time, making them ideal for saving toward your future tax bill.
Choosing the most tax-efficient salary
As a company director, by understanding the tax rules surrounding salary and dividends, you can legally reduce your company and personal tax payments while setting aside more for your future. With a clear strategy and all the information listed in this guide, paying yourself as a director can be straightforward, and whether you’re running a side hustle or managing a growing business, structuring your director’s pay wisely could save you thousands every year.
Need help setting up a limited company or managing your director’s responsibilities? Compare our formation packages to find the right support for you. If you require assistance with your tax planning, we recommend speaking with an accountant for tailored, professional advice.
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Comments (30)
I am over state pension age and intend to incorparate my self-employed business (trade as sole director of my company to be registered.) Will it make sense to pay myself DIVIDENDS ONLY if I need roughly about £40K after tax income per year?
Calculations will be appreciated.
Daniel
Thank you for your kind comment.
Unfortunately as we are not regulated to provide accountancy advice, we are unable to provide advice on specific scenarios. We would recommend contacting an accountant for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Your examples are great, but can I suggest an improvement by adding corporation tax deductible Pension contributions please?
I believe this would help many scenarios to reduce tax for a director and their company while benefitting their pension pot.
Thanks again for listening.
Dear Vincent,
Thank you for your kind comment.
I will take your suggestion to the author to see the possibility of making amendments. Please do let us know if you have any additional queries.
Kind regards,
The 1st Formations Team.
Hi,
Thank you for a very informative article. If I have two limited companies, would the same guidance apply to each company individually or would I need to consider the position of the combined income? E.g. if each company has profits of £30,000, would the numbers work in a similar fashion to the example presented where a company has £60,000 profits (with the added benefit of both companies being able to pay the initial £5,000 without incurring Employers NI)?
Thank you for your kind comment.
Unfortunately as we are not regulated to provide accountancy advice, we are unable to provide advice on specific scenarios. We would recommend contacting an accountant for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Hi Abbie,
I just want to say thank you for this very informative article. I’ve just finished my second year as a sole director of my limited company and have realised that I’ve paid thousands of pounds extra that I needn’t have. I do have an accountant, but she advised me to take all my money out as PAYE, which wouldn’t be so bad if not for the additional employer NI payments (I also ended up with a large corporation tax bill in year 1 as I didn’t know that leaving money in the company was seen as profit!). Oh you live and learn! Thanks to you, I’m informed and ready for year 3.
Dear Frances,
Thank you for your kind comment! Please do accept our sincere apologies for any negative experience you may have had.
We are very pleased that you were able to find informative information on our site. If there are any questions that we can answer, please do let us know and we will do all we can to assist.
Kind regards,
The 1st Formations Team.
Hi,
I’m not UK resident and not working in UK. I would like to know if all this article’s info be any different for non uk resident and worker?
Thank you for your kind comment.
Unfortunately as we are not regulated to provide accountancy advice, we are unable to provide advice on specific scenarios. We would recommend contacting an accountant for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Hi,
What is the best way to pay tax (not pay a lot of tax ) if I am in a part time job possition in another company where I earn more than the minimum and pay NI and 20% tax above secodary treshold allready. I have also my own Ltd. Company with 100% shares ownership. Shall I pay myself only via dividents throught my own company? Will that whole sum(from both places) be acepted if I want to get a commercial mortgage? Does dividents counts for taking a mortgage? Thanks
Thank you for your kind comment.
Unfortunately as we are not regulated to provide accountancy advice, we are unable to provide advice on specific scenarios. We would recommend contacting an accountant for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Am I right in thinking that savings interest can significantly affect these calculations?
If you’re currently at the £50270 limit, then £100 of extra income from savings tips you into being a higher earner, regardless of the fact that this is within the £500 savings allowance (nil rate band) and regardless of any dividends allowance/nil rate band.
Therefore £100 of dividends are now taxed at 33.75% instead of 8.75%
Meaning that you pay an extra £25 tax (£33.75 less £8.75), and so are now effectively paying 25% tax on your savings interest despite it still being within the nil rate band.
It seems iniquitious – so would appreciate whether I’m correct in this understanding.
Hi David,
Thank you for your kind comment.
Unfortunately as we are not regulated to provide accountancy advice, we are unable to provide advice on specific scenarios. We would recommend contacting an accountant for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Could you explain why your higher tax rate used in the dividend calculation is 33% and not the 40% higher rate?
Hi Jack,
Thank you for your question. The dividend tax rates noted in the blog align with those set by the Government (please see: https://www.gov.uk/tax-on-dividends). Compared to salaries etc, lower rates of personal tax are applied to dividends because a company’s profits (from which dividends are paid) will already have been subjected to Corporation tax. We hope this helps to clarity.
Kind regards,
The 1st Formations Team
I have recently left my full time permanent employment to work as sole Director of my own Ltd company. Am I right to think that if I have already used up my personal allowance with my employment salary, the most tax-efficient way to pay myself until end of tax year 2024-25 would be only in dividends?
Hi Ev,
Thank you for your kind comment.
Yes, based on what you’ve mentioned, that would be the most tax efficient method.
Kind regards,
The 1st Formations Team
All in all very informative. Unfortunately, whilst you correct yourself later, there is no tax free dividend allowance, although it appears there is. The total dividends are part of the taxable income but the tax rate on the first £500 is charged at 0%. It is not an allowance but a tax rate; I admit it is pedantic to raise this but there is misunderstanding. As you say this can affect the tax rate on other income; it can also count towards a reduction in relief available for high earners’ pension contributions; counts as income in the event of loss relief claims.
Also, if you want a pension, it is generally better to have the company pay the contributions, rather than the individual. The contributions, subject to the normal expense tests for taxable profits, do not attract Employer’s NIC and, as it is not part of the employee’s/director’s earnings it does not attract Class 1 NIC contributions.
Finally, as an alternative, to putting the tax by in a personal high interest account, you could pay the tax in advance. This seems counterintuitive, but if you pay tax.in advance it earns interest on your self assessment account; the rate is 1% under Bank of England Base Rate, not quite high interest but not shabby. The two advantages to this are: the interest paid by HMRC to individuals is not chargeable to tax so can enhance your return towards Base Rate and above: if a large amount is involved, above £85,000, you have no worries about the limit to that amount of protection und the FSCS.
Thank you. We are pleased you consider the article to be informative. Many thanks for your insightful and shrewd comments. We’ve edited the article to replace “tax-free” with “0%” in relation to the dividend allowance. The point you raise about pension contributions is reflected in another of our articles which covers director pension contributions in greater depth: https://www.1stformations.co.uk/blog/company-director-pension-contributions/. We are sure many readers will appreciate your comment regarding paying tax in advance.
Kind regards,
The 1st Formations Team
Hi Mathew,
I’m in the process of registering a Ltd in the UK, but I must admit, I’m quite new to the complexities of paying taxes and understanding the diverse types involved.
Could you kindly provide some detailed examples of the taxes that would be applicable to someone in my situation? Specifically, I’m interested in knowing the taxes I would need to pay as a non-UK resident.
For instance, if I establish a Limited company in the UK but reside in Algeria, what tax obligations would I have? How would I go about managing and paying these taxes?
Your guidance on this matter would be greatly appreciated.
Thank you in advance for your assistance!
Hi Mounira, thank you for your kind comment.
UK limited companies are required to pay between 19% and 25% Corporation Tax on the profits they make. We would recommend taking a look at our post on corporation tax for more information on how to register.
Unfortunately as we are not regulated to provide accountancy advice, we are unable to provide advice on specific scenarios. We would recommend contacting an accountant for further assistance.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Hi Mathew are there any accountant you would recommend?
Thanks, Aeb
Unfortunately, we no longer offer any referrals to an accountant, nor do we have any in-house accountants. If you need assistance, we would recommend taking a look online and you may find an accountant that is suitable for your company’s needs.
Please accept our apologies for any inconvenience caused.
Kind regards,
The 1st Formations Team
Hi, very informative post. You mention it is worth investing the tax due in a high interest bank account for the tax due on dividend payments. Is it possible to invest this in a personal high interest bank account, or does this need to be a high interest bank account in the name of the ltd company. I am a single director / employee of my Ltd Co.
Thank you for your comment, Rey. Yes, a personal bank account would be fine.
Kind regards,
The 1st Formations Team
Can I suggest you add the company tax due within the examples please?
Many people reading this could be single person Ltd company directors, therefore would benefit from knowing total tax and net income, ideally in a table format :-)
I think it’s worthwhile noting the following;
Who cannot claim Employment Allowance
You cannot claim if you’re a public body or business doing more than half your work in the public sector (such as local councils and NHS services) – unless you’re a charity.
You also cannot claim if both of the following apply:
you’re a company with only one employee paid above the Class 1 National Insurance secondary threshold
the employee is also a director of the company.
Thank you for your kind comment and suggestion, Vincent. I can confirm we will make your desired changes this week.
Once again, thank you for your contribution.
Kind regards,
The 1st Formations Team
Hello!
In your example 1 of paying yourself £50k per year. Does the 19% corporation tax apply to the £41k profit and then when this has been deducted, do you then pay 8.75% on the dividends left?
Thank you!
Hello Emma,
Thank you for your comment. That is almost correct, however the corporation tax would be applied to the total profits of the company, not just the £41k being extracted as dividends.
Dividends are best considered as a “post-profit distribution”. Corporation tax will be applied to the taxable profits of the company. This would be at 19% if the small profits rate applies, however, be aware that for companies with over £250k taxable profit then this corporation tax rate would rise to 25% above this limit. Once tax has been paid from the company profits, the remainder is available for extraction. The rationale for £41k being extracted in this example is that it uses up the individual’s basic rate tax bands which are more tax efficient. The individual receiving the dividend would be taxed at 8.75% on the dividends which fall within the individual’s basic rate band but outside of the personal allowance. These dividends would need disclosure on a self-assessment tax return to declare the tax to be paid.
Kind regards,
The 1st Formations Team