Why do company directors take a salary and dividends?
Directors of their own limited company are paid in two main ways. A salary is taxed as employment income and can carry National Insurance (NI). Dividends are a share of the company's after-tax profit paid to shareholders, and they pay no NI. Because the two are taxed differently, many directors use a mix. The best mix depends on your circumstances and the company's, so speak to an accountant. The figures below are for the 2026/27 tax year in England, Wales and Northern Ireland and can change at any Budget.
How are dividends taxed in 2026/27?
Dividends are taxed as the top slice of your income: your salary uses up the personal allowance and the lower bands first. The first £500 of dividends is covered by the dividend allowance, then:
| Band the dividend falls in | Dividend tax rate |
|---|---|
| Basic rate (income up to £50,270) | 10.75% |
| Higher rate (£50,271 to £125,140) | 35.75% |
| Additional rate (above £125,140) | 39.35% |
The basic and higher dividend rates rose by 2 percentage points on 6 April 2026. The personal allowance (£12,570) is reduced by £1 for every £2 of total income above £100,000.
Worked example: £12,570 salary and £30,000 of dividends
- Salary: £12,570 is fully covered by the personal allowance, so income tax and employee NI are both £0.
- The first £500 of dividends uses the dividend allowance, leaving £29,500 taxable.
- All £29,500 falls in the basic rate band: 10.75% = £3,171.25 of dividend tax.
- Take-home: £42,570 minus £3,171.25 = £39,398.75 a year, or about £3,283 a month.
Assumes no other income, pension or student loan, and ignores Corporation Tax (see below).
What does this calculator not include?
It covers only the tax you pay personally. Corporation Tax is paid by the company on its profits before dividends can be declared, and any employer NI is a company cost. Dividends can only be paid from available profits. The calculator also ignores pensions, student loans, Scottish rates and other income.
How do mortgage lenders treat director income?
Lenders vary. Many will look at a mix of salary and dividends, and for company directors it is common to look at your share of the company's net profit or an average over the last two or three years of accounts, often supported by SA302 tax calculations or an accountant's reference. Some lenders use only the most recent year and others an average, and they differ on how retained profit is treated. A broker who knows which lenders suit director applicants can help. To see what your income might support, use the mortgage affordability calculator and the loan-to-income calculator, and compare a salary-only figure with the salary calculator.
What should you do next?
Work out what you take home at a few different pay levels, then confirm the tax position with an accountant before deciding anything. This is general information, not tax or financial advice.