The best way to pay yourself as a business owner in 2026/27

For most limited company directors, the best way to pay yourself in 2026/27 is a salary of £12,570 a year, with the rest taken as dividends. Sole traders simply take drawings, because they are taxed on the business profit whatever they withdraw. The right mix depends on your profit, whether the company can claim the Employment Allowance, and whether you want to pay into a pension.

How can a business owner pay themselves?

There are four main routes, and which ones you can use depends on how the business is set up.

A director’s loan is a fifth option, but it must be repaid and can trigger tax; see director’s loan account.

The 2026/27 rates that decide the answer

These are the figures from HMRC’s rates and thresholds for employers and tax on dividends:

• personal allowance: £12,570
• employee NI: 8% from £12,570 to £50,270, 2% above
• employer NI: 15% above £5,000 a year
• Employment Allowance: up to £10,500
• dividend allowance: £500, then 10.75% (basic), 35.75% (higher) and 39.35% (additional)
• Corporation Tax: 19% on profits up to £50,000, 25% above £250,000, with marginal relief between

Budget 2026 on 28 October 2026 kept all of these for 2027/28; see Budget 2026 for directors.

What salary should a director take?

A salary of £12,570 is usually best. It uses your personal allowance, so there is no income tax, and it equals the primary threshold, so there is no employee NI. It is above the lower earnings limit of £6,708, so it counts towards your State Pension.

The salary and any employer NI reduce the company’s taxable profit. The question is whether that saving beats the employer NI cost.

• If the company can claim the Employment Allowance (for example, it has another employee on payroll as well as you), employer NI is usually covered, so £12,570 is clearly better.
• If you are the only director and the only employee liable for employer NI, the company cannot claim the allowance. A £12,570 salary costs £1,135.50 in employer NI, but the Corporation Tax saving still makes it the better choice in our example below.

Above £12,570, salary attracts 8% employee NI, 15% employer NI and 20% income tax, so dividends are usually cheaper. Check your own figures with the optimal director’s salary calculator.

Worked example: £60,000 profit

A sole director in England with no other income, £60,000 of profit before paying themselves, and no Employment Allowance. All post-tax profit is paid out as dividends.

How the £12,570 route works:

1. Salary £12,570; employer NI (£12,570 minus £5,000) × 15% = £1,135.50.
2. Taxable profit £46,294.50; Corporation Tax at 19% = £8,795.96.
3. Dividends £37,498.54; tax (£37,498.54 minus £500) × 10.75% = £3,977.34.
4. Take-home: £12,570 + £37,498.54 minus £3,977.34 = £46,091.20.

With a £5,000 salary the company’s profit is £55,000, which falls into marginal relief, so Corporation Tax is £10,825 and take-home drops to about £45,294. These figures ignore student loans, pensions and other income. Try the salary vs dividends calculator.

How do sole traders pay themselves?

Sole traders take drawings, which are not taxed in themselves. You pay income tax and Class 4 NI on your profit through Self Assessment, whether you withdraw it or not. In 2026/27 Class 4 is 6% on profits from £12,570 to £50,270 and 2% above.

On £60,000 of profit a sole trader pays £11,432 income tax and £2,456.60 Class 4 NI, keeping about £46,111. That is close to the company figure, before the company’s accounting and filing costs. See how to pay yourself as a sole trader.

Should you use pension contributions?

Employer pension contributions are a third way to extract profit. They are not subject to NI and are usually deductible for Corporation Tax if they are wholly and exclusively for the business. They count towards your annual allowance of £60,000, which tapers for very high incomes. You cannot reach the money until normal minimum pension age.

Which applies to you?

• If you are a sole trader: take drawings and set aside money for your January and July tax bills.
• If you are a sole director with no staff: £12,570 salary plus dividends usually wins, even after employer NI.
• If the company has other employees: claim the Employment Allowance and take £12,570 salary.
• If dividends would push you over £50,270: consider employer pension contributions or leaving profit in the company.

What to do now

1. Set your 2026/27 salary on payroll at £1,047.50 a month (£12,570 a year).
2. Check the company has the profits available before declaring any dividend; see how to declare a dividend.
3. Keep board minutes and dividend vouchers for every payment.
4. Report dividends above your allowances to HMRC through Self Assessment by 31 January 2028.

Frequently asked questions

What is the best director’s salary for 2026/27?

For most directors it is £12,570 a year. It uses the personal allowance, has no employee NI and earns a State Pension qualifying year.

Is it better to take salary or dividends?

Up to £12,570, salary is usually better. Above that, dividends are usually cheaper because they carry no NI and are taxed at 10.75% in the basic rate band.

Can a one-person company claim the Employment Allowance?

No. GOV.UK says that if a company has only one director, they must not be the only employee liable for secondary Class 1 NI.

Are dividend tax rates changing in 2027/28?

No. Budget 2026 kept the 10.75%, 35.75% and 39.35% rates and the £500 dividend allowance for 2027/28.

How much tax does a sole trader pay on £60,000 profit?

In 2026/27, about £11,432 income tax and £2,456.60 Class 4 NI in England, Wales or Northern Ireland, leaving about £46,111.