Your guide to directors’ pay in the UK

Do you run a limited company in the UK, or are you thinking of incorporating your business and not sure where you stand in terms of getting paid?  

In this guide, we breakdown the main remuneration methods available to company shareholder-directors in the UK so you know where you stand.  

How can a director pay themselves?

Taking a salary 

A salary is a regular payment from the company to a director, in the same way that a regular employee is paid. Salary gives the following advantages for directors: 

• State pension qualifying years: Having a regular salary that is above the national insurance contributions (NICs) lower earnings limit means the director builds up qualifying years towards their state pension. 
• Personal pension contributions: Allows for greater tax relief on personal pension contributions, as the maximum relief available is based on your relevant UK earnings.
• Evidence of income: Having a regular income can make it easier to provide evidence for mortgages or critical illness insurance 
• Redundancy eligibility: Having a salary can mean you are eligible for redundancy payments.

A salary gives the following disadvantage for directors: 

• Income tax and NICs: Directors' salaries are subject to income tax and both employee’s and employer’s NICs.

Bonuses

A bonus is a one-off cash payment made to an employee or director. Bonuses can be annual and may be tied to the performance of a director or the company. Bonuses may be contractual or non-contractual.  

• A contractual bonus means that employees and directors are aware of their entitlement to a bonus and it is usually calculated based on performance criteria. A contract may also include a guarantee of a minimum amount or a formula to calculate the bonus.  
• A non-contractual or discretionary bonus is where a company has discretion over whether a bonus will be paid, how it will be calculated and how much.   

Bonuses are subject to income tax and NICs (employees’ and employer’s) where applicable. 

Paying yourself through dividends 

Dividends are payments made to shareholders from the company's profits. Directors who are also shareholders can receive dividends. 

Dividends have the following advantages for directors:

• Lower tax rates: The rate of tax for dividend income is lower than the rate for salary, but the gap has closed significantly over the last few years.
• No NICs: No NICs (employees’ or employer’s) are usually payable on dividend income.  
• Dividend allowance: Most individuals in the UK have a dividend allowance, which results in tax-free dividends of up to £500 each year. 

Dividends have the following disadvantages for directors: 

• Distributable reserves: Dividends can only be paid from company profits, the company must have sufficient distributable reserves to delcare them. 
• Shareholders only: As dividends are a distribution of profits for shareholders, if you are a director but not a shareholder of a company, you cannot receive dividends. 

What is the most tax-efficient director's salary in 2026? 

The low salary, high dividend strategy explained 

Traditionally advice for director-shareholders has been to take a low salary and their remaining remuneration in dividends to take advantage of the lower dividend tax rates, compared to income tax and NICs on salary payments.  

However, in recent years, this strategy has been less effective as successive governments have sought to reduce the gap between tax rates on ‘earned’ income such as salary, wages and bonuses, and ‘unearned’ income such as dividends and interest.  

Furthermore, companies pay corporation tax on their profits and can claim a deduction for salary and employer’s NICs payments, which need to be considered when looking at the overall cost to companies and directors. 

Several factors influence the decision of how a director is paid. Most directors of owner-managed companies will be paid a mixture of salary and bonus and dividends in the most tax-efficient way so the following factors should be considered when choosing the best methods and levels of payment: 

• Tax efficiency: Ask your accountant to prepare calculations of different salary and dividend strategies to consider so you can choose the most tax-efficient for your business. 
• Business finances: The company must have sufficient profits to pay dividends and sufficient cash to afford salary and bonus payments. If your salary and bonus has depleted company profits, there may be no distributable reserves to declare a shareholder dividend.  
• Personal circumstances: Another consideration is your individual circumstances. For example, your long- and short-term financial goals, commitments, and other income sources.  

Tax Rates

In the UK, the tax rates for different types of income vary depending on the type of income and which nation of the UK the income falls within. The following rates are for 2026/27 tax year: 

Income tax rates for salary and bonuses – England, Wales and Northern Ireland 

Basic rate	20%
Higher rate	40%
Additional rate	45%

Income tax rates for salary and bonuses – Scotland 

Starter rate	19%
Basic rate	20%
Intermediate rate	21%
Higher rate	42%
Advanced rate	45%
Top rate	48%

Dividend tax rates – UK wide 

Basic rate	10.75%
Higher rate	35.75%
Additional rate	39.35%

NICs: what directors need to know 

NICs calculated on directors’ pay in a different way to employees’ pay. The default way to calculate directors’ NICs is on an annual earnings period. This means that when a company pays salary or bonus to a director, the company: 

• calculates the director’s pay for the whole tax year to date 
• calculates the employee’s NICs due on that pay for the that year to date  
• subtracts the employee’s NICs paid in the year to date to get the employee’s NICs due.

This is the best method for directors who receive irregular salary and bonus payments.  

Alternatively, employee NICs can be calculated for that pay period – e.g. a month – as per normal employees. Then at year end, calculate the NICs on an annual basis and if more employees’ NICs are due, deduct it from the final pay period of the tax year. This may be a better method for directors with a steady monthly salary.  

If your company employs other people (and not just you, a director) who are paid more than the secondary threshold, you may be able to claim Employment Allowance against your NICs bill. 

Directors’ expenses 

Costs paid personally by the director on behalf of the business are reimbursable. Examples of expenses paid personally may include: 

• travel and subsistence 
• equipment and  
• other services.  

For working from home expenses, see our guide here. 

Directors’ loan accounts 

Unlike a sole trader business, a limited company is a separate entity to its owners and managers. Unlike a sole trader or partnership business, you cannot take drawings from a company. Extracting payment from a limited company that is not salary, bonus or dividend must be recorded as a loan to the director. A director’s loan must be carefully managed as there are legal and tax consequences. 

For more information on directors’ loans, including interest charges and repayment dates, read our article on Directors’ Loan Accounts Explained. 

Taxable benefits-in-kind (BIKs)

In addition to salary, bonus, and dividend payments, directors may also receive BIKs. These benefits can include company cars, fuel, private medical insurance and other perks. 

Benefits that are not tax-free (such as workplace parking, a mobile phone and drinks at work) are subject to income tax and NICs. 

Directors’ pensions 

As a director of a limited company, enrolling in a company pension scheme allows you to plan for your future. Pension contributions paid by the company are also an allowable expense for a limited company, making them a very tax efficient way to extract profits if you do not need to access the cash imminently. 

Last updated: 19th June 2026