Last reviewed by David Ballard FCA (ICAEW). General guidance, not personalised advice — ask us for a tailored recommendation.
Why a low salary plus dividends still works
A salary at or near the NIC secondary threshold (£9,100 in 2025/26 / expected £9,100–£9,500 in 2026/27) preserves state-pension qualifying years and is deductible against Corporation Tax, without triggering meaningful employer or employee NIC. Dividends above that are paid from post-tax profits.
Dividend allowance
The dividend allowance is £500 for 2025/26. Above that, dividends are taxed at 8.75% (basic), 33.75% (higher) and 39.35% (additional). The personal allowance of £12,570 still covers salary and part of dividends for most sole directors.
Employment Allowance nuance
A company with only a single director on payroll cannot claim Employment Allowance. Adding a second paid employee (e.g. a spouse doing genuine work) may unlock it — but HMRC must be satisfied the role is real.
This is general guidance. Every director’s mix of income, pension contributions and other earnings differs — ask us for a tailored calculation.