Personal tax planning for directors is broader than completing a Self Assessment return once the year has ended. It covers how income leaves your company, how the company is taxed, and how you are taxed personally — and all three interact. A salary decision affects Corporation Tax. A dividend decision depends on distributable reserves and uses your personal tax bands before you draw another penny. A pension contribution can change both.

The difficulty is that most of these decisions need to be made while the relevant period is still open. Once your company year-end has passed or 5 April has come and gone, you cannot normally change when salary, dividends or pension contributions were paid. Effective director tax planning means reviewing your position when you can still act on it, not after the fact.

The 2026/27 rates and rules set out below are the ones that frame this year's decisions. Your starting point should be your complete company and personal position, not a standard salary figure someone else uses.

A salary figure that suits one director may produce a less favourable outcome for another. The appropriate mix depends on several connected factors, and it can shift during the year as profits, tax bands and personal plans develop.

The factors you need to consider include:

• Your company's taxable profits
• Whether the company has other employees
• Employment Allowance eligibility
• Your other personal income
• Your pension plans
• Whether you are a Scottish taxpayer, where income tax bands differ for salary and other non-savings, non-dividend income
• Your immediate need for cash
• Your future plans for the company

Your calculation should bring together profits, distributable reserves, payroll costs, Corporation Tax, other personal income and cash requirements. Salary and dividends are taxed differently, but looking at either in isolation produces an incomplete picture. The most suitable split is not a fixed answer — it is the output of a model that reflects your specific position at a specific point in time.

This is also why proactive planning, through personal tax support, tends to be more useful than waiting until your return is prepared. By then, the options have often narrowed considerably.

The main 2026/27 tax rates and allowances determine how much salary and dividend income you can receive before higher rates apply. The table below sets out the ones most relevant to director remuneration planning.

Scottish Income Tax bands differ for salary and other non-savings, non-dividend income. Dividend tax rates apply across the UK.

Salary

Salary is normally an allowable business expense where it is incurred wholly and exclusively for the trade, so it can reduce your company's taxable profits. However, PAYE and National Insurance will arise. Employee NI is generally charged at 8% between the Primary Threshold and the Upper Earnings Limit, then at 2% above that. Your company may also pay employer NI at 15% above the £5,000 Secondary Threshold, which means a salary of £12,570 is not automatically the best option for every director.

Salary uses your Personal Allowance and Income Tax bands before dividends are considered. Remuneration accrued at the accounting year-end generally needs to be paid within nine months of the period end to obtain Corporation Tax relief in that period. You should compare the Corporation Tax saved against the Income Tax and NI created.

Dividends

Dividends do not attract National Insurance and are not deductible for Corporation Tax. They must be paid from profits available for distribution after Corporation Tax has been accounted for. For 2026/27, dividend income above the £500 Dividend Allowance is taxed at 10.75% within the ordinary rate band, 35.75% within the upper rate band, and 39.35% within the additional rate band. Because salary and other taxable income use your tax bands first, a seemingly modest dividend can be partly pushed into a higher rate.

Employment Allowance

Eligible employers can reduce employer Class 1 NI by up to £10,500 for 2026/27. A company with only one director who is also the only employee liable for employer NI cannot claim Employment Allowance. This creates a different calculation for single-director companies compared with companies that have additional employees, and it is one reason why a higher salary may or may not be appropriate depending on your setup.

When a higher salary still makes sense

A higher salary may still be appropriate where you need regular income, want to maintain your National Insurance record, or need evidence of earnings for a mortgage application. Pension planning, statutory entitlements and commercial considerations can all point in the same direction. The lowest immediate tax figure is not always the most suitable overall outcome.

Dividends are not simply transfers from your company bank account. Official guidance on taking money from a limited company sets out the distinction between salary, dividends and directors' loans. There are several things to confirm before paying one.

Distributable reserves

You should check current management information and accumulated realised profits, not the bank balance. A company may have cash available but insufficient distributable profits to pay a lawful dividend. Equally, a profitable company may temporarily have limited cash. These are separate questions.

Required paperwork

Your company should keep minutes recording the dividend decision and prepare a dividend voucher showing the dividend date, the company name, the shareholders receiving the dividend, and the amount paid. A copy should be provided to each recipient and retained with the company records. You should not retrospectively create a dividend to reclassify earlier withdrawals.

When a dividend is taxed

An interim dividend is generally taxed when it is actually paid or placed unreservedly at your disposal. A final dividend is generally due and payable when it is validly declared, unless the resolution specifies a later payment date. Simply documenting an interim dividend before 5 April does not automatically place it within that tax year.

Share rights and different dividend outcomes

Dividends should normally be paid according to the rights attached to each class of shares. Shareholders holding the same class would ordinarily receive dividends on the same basis, unless a valid waiver or other lawful arrangement applies. Different dividend outcomes for different shareholders may require properly drafted share classes and legal advice.

Director's loan account

Unclassified withdrawals may be posted to your director's loan account. If an overdrawn loan remains outstanding nine months and one day after the company year-end, a section 455 Corporation Tax charge may arise. Loans above £10,000 may also create a taxable beneficial-loan charge where insufficient interest is paid, while a written-off loan can produce personal tax consequences. Your remuneration decisions should also be reflected correctly in your company's Corporation Tax return.

Your company's accounting year-end and the personal tax year ending on 5 April are separate deadlines. A decision that affects one period does not necessarily affect the other, and both timelines need to be reviewed so that dividends, bonuses, pension contributions and other actions fall within the intended period.

Before your company year-end

Review forecast taxable profits, expected Corporation Tax, available distributable reserves, capital expenditure, outstanding remuneration, employer pension contributions, your director's loan account, and any business expenses still awaiting reimbursement. Confirm which actions require actual payment rather than a simple accounting entry. Employer pension contributions, for example, generally need to be paid to obtain relief in the intended accounting period. Exceptionally large employer contributions may also be subject to spreading rules.

Before 5 April

Project your total salary, dividends and other personal income for the tax year. Check whether further income could affect your Personal Allowance, your dividend tax band, the High Income Child Benefit Charge, pension allowances, student loan repayments, or Self Assessment payments on account. Other employment, property income, savings and investments can all shift your position. If your adjusted net income approaches £100,000, the reduction in your Personal Allowance creates an effective marginal rate that changes the calculation considerably.

A practical review sequence

1. Update bookkeeping and management accounts.
2. Forecast profit through to the company year-end.
3. Estimate Corporation Tax at the relevant effective rate.
4. Confirm available distributable reserves.
5. Review salary already processed through payroll.
6. Project total personal income to 5 April.
7. Model further dividends, bonuses and pension contributions.
8. Check the director's loan account.
9. Forecast January and July Self Assessment payments.
10. Document and process agreed decisions before the relevant deadline.

When to review sooner

Review your position ahead of schedule if company profits change significantly, you establish or acquire another company, new shareholders join the business, your other personal income changes materially, your adjusted net income approaches £100,000, you plan a major pension contribution, or you expect to sell or close the business. These events change the inputs enough that your previous model may no longer reflect your actual position.