How directors get paid from a limited company
A director who owns shares can take money out as salary, as dividends, or both. GOV.UK's page on taking money out of a limited company sets out the basics:
- Salary goes through payroll. The company must register as an employer, deduct Income Tax and employee National Insurance, and pay these to HMRC along with any employer National Insurance.
- Dividends are paid to shareholders from profits. A company "must not pay out more in dividends than its available profits from current and previous financial years", and each payment needs a dividend voucher.
- Money taken out that is neither is a director's loan, which must be recorded.
Salary and employer National Insurance reduce the company's taxable profit. Dividends do not: they are paid from profit that has already borne Corporation Tax. That difference drives most salary decisions.
This guide explains rules and gives illustrations. It is not personal tax advice. Your best salary depends on your other income, where you live, pension plans, company profit and whether anyone else is on the payroll. A qualified adviser can model your own figures.
The 2026/27 thresholds that matter
These figures apply from 6 April 2026 to 5 April 2027 and come from HMRC's rates and thresholds for employers 2026 to 2027.
| Threshold | Annual | Monthly | What it does |
|---|---|---|---|
| Secondary Threshold (ST) | £5,000 | £417 | Employer National Insurance of 15% starts above this |
| Lower Earnings Limit (LEL) | £6,708 | £559 | Pay at this level builds your National Insurance record |
| Primary Threshold (PT) | £12,570 | £1,048 | Employee National Insurance of 8% starts above this |
| Personal Allowance | £12,570 | £1,048 | Income Tax starts above this (tax code 1257L) |
| Upper Earnings Limit | £50,270 | £4,189 | Employee National Insurance drops to 2% above this |
Between the LEL and the Primary Threshold, no employee National Insurance is paid but, as GOV.UK's National Insurance overview puts it, "your contributions are treated as having been paid to protect your National Insurance record." That record counts toward the State Pension. Income Tax rates in England, Wales and Northern Ireland are 20%, 40% and 45%; Scotland sets its own bands.
Directors' National Insurance has some special rules, including how earnings periods work. HMRC's booklet CA44, National Insurance for company directors, has a 2026/27 edition with the detail.
Why many directors set salary at a threshold
Most one-person companies choose one of three salary levels. The table assumes a sole director with no other income, living outside Scotland, in a company that cannot claim the Employment Allowance. It is an illustration, not a recommendation.
| Annual salary | Employee NI | Income Tax | Employer NI (15%) | Counts toward State Pension? |
|---|---|---|---|---|
| £5,000 (ST) | £0 | £0 | £0 | No (below the LEL) |
| £6,708 (LEL) | £0 | £0 | £256.20 | Yes |
| £12,570 (PT and Personal Allowance) | £0 | £0 | £1,135.50 | Yes |
Employer National Insurance is 15% of pay above £5,000: £1,708 × 15% = £256.20, and £7,570 × 15% = £1,135.50.
£5,000: no National Insurance at all
This avoids employer National Insurance entirely, but pay below the LEL does not build a National Insurance record. HMRC's PAYE manual also says a PAYE scheme is only needed when pay reaches the LEL or other conditions apply, such as another job, a pension, or benefits and expenses, so some directors at this level do not run payroll at all.
£6,708: a State Pension year for a small cost
Paying at the LEL gives a qualifying year for the State Pension while the director pays no tax or National Insurance. The company pays a small amount of employer National Insurance if it cannot claim the Employment Allowance.
£12,570: using the whole Personal Allowance as salary
Salary up to £12,570 is free of Income Tax and employee National Insurance for someone with no other income. The cost is employer National Insurance for a sole-director company, but salary and employer National Insurance both reduce Corporation Tax.
An illustration: moving from £6,708 to £12,570 means £5,862 more salary and £879.30 more employer National Insurance, a company cost of £6,741.30. If the company instead kept that £6,741.30 as profit, at the 19% small profits rate it would pay £1,280.85 Corporation Tax and could pay a £5,460.45 dividend, which would fall inside the director's unused Personal Allowance. So in this example the higher salary leaves the director about £401 better off. At higher Corporation Tax rates the gap widens; with other income using your Personal Allowance, the answer can change. Rates are on GOV.UK's Corporation Tax rates page.
Employment Allowance: the sole-director rule
The Employment Allowance cuts an employer's National Insurance bill by up to £10,500 a year, but sole-director companies usually cannot claim it. HMRC's single-director guidance, updated 28 May 2026, says: "Limited companies cannot claim Employment Allowance if they have just one director and that director is the only employee liable for secondary Class 1 National Insurance."
The picture changes if someone else is paid above the Secondary Threshold:
- A company with two directors who both earn above £5,000 can claim. HMRC gives the example of husband and wife directors who both earn above the threshold.
- A company that also employs someone paid above the Secondary Threshold can claim, and HMRC's examples include seasonal workers paid above it in a week.
Where the allowance is available, the £1,135.50 of employer National Insurance on a £12,570 salary sits well within the £10,500 limit. Other exclusions, such as public sector work, are in GOV.UK's eligibility rules.
Setting up director payroll: RTI registration
If the director's salary needs a PAYE scheme, the company must register with HMRC as an employer before the first payday, and not more than 2 months before. GOV.UK says this applies even if you are "only employing yourself, for example as the only director of a limited company". HMRC posts the PAYE reference.
Then every payment is reported in real time. HMRC's payroll reporting rules require a Full Payment Submission (FPS) on or before each payday, an Employer Payment Summary (EPS) by the 19th of the following tax month where needed, and payment to HMRC by the 22nd (19th if paying by post).
Our payroll service covers the monthly run in detail: employer registration, FPS and EPS, payslips and P60s.
Dividends on top of salary: 2026/27 rates
Profit left after Corporation Tax can be paid out as dividends. GOV.UK's tax on dividends page sets the 2026/27 position:
| Tax band | Dividend tax rate |
|---|---|
| Dividend allowance (first £500) | 0% |
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
Dividends that fall within your Personal Allowance are not taxed. Salary uses the allowance first, then dividends sit on top. With a £12,570 salary, for example, a £20,000 dividend would have £500 at 0% and £19,500 at the basic dividend rate: £19,500 × 10.75% = £2,096.25, assuming no other income.
Dividends carry no National Insurance, which is why a threshold salary plus dividends is a common pattern. But dividends need available profits and a voucher for each payment, and dividend tax is paid through Self Assessment, often in one sum on 31 January. See our Self Assessment deadlines guide for the payment dates.
Common mistakes to avoid
- Paying salary without a PAYE scheme when one is needed, or registering and then not sending an FPS or EPS.
- Assuming the Employment Allowance applies to a sole-director payroll.
- Paying dividends when the company has no available profits, which breaks the rule GOV.UK sets out for dividends.
- Taking money without deciding whether it is salary, dividend or a director's loan.
- Forgetting that a director who lives abroad may face tax in their home country as well. Residence and treaty questions need advice.
How Borderless Filings helps
You decide your salary level, ideally with an adviser. We run the payroll that follows: employer registration, monthly RTI submissions, payslips, reminders of what to pay HMRC by the 22nd, and your company's accounts and CT600 at year end. We are a filing service, not a tax adviser, and we do not recommend salary or dividend levels.
Sources
- GOV.UK: Taking money out of a limited company
- HMRC: Rates and thresholds for employers 2026 to 2027
- GOV.UK: National Insurance
- HMRC: CA44, National Insurance for company directors
- HMRC manual: PAYE20020
- GOV.UK: Corporation Tax rates
- HMRC: Single-director companies and Employment Allowance
- GOV.UK: Employment Allowance eligibility
- GOV.UK: Register as an employer
- GOV.UK: Running payroll, reporting to HMRC
- GOV.UK: Tax on dividends
Fees, deadlines and rules on this page were last checked on 27 September 2026.