Dividend vs Salary: What to Pay Yourself as a Director

The Classic Director Strategy

Most directors take a small salary plus dividends:

Step 1: Pay a salary of £12,570 (Personal Allowance) — no income tax, maintains NI credits

Step 2: Take remaining profit as dividends

Why Dividends Are More Tax Efficient

No National Insurance on dividends (saves 8%+ vs salary)

Lower tax rates — 8.75% basic rate vs 20% on salary

£500 Dividend Allowance — first £500 is tax-free

2025/26 Dividend Rates

BandRateAllowance0% (£500)Basic Rate8.75%Higher Rate33.75%Additional Rate39.35%

Disclaimer: This guide is for information only and does not constitute tax or financial advice. Tax rules are complex and subject to change. Always seek professional advice for your specific circumstances.