From 6 April 2026, dividend taxes will rise by 2%. So does the limited company model still make sense? Let’s address this head-on.

Yes, dividends are more expensive than they were, and yes, the gap between salary-only and salary-plus-dividends has narrowed. But no, the strategy hasn’t changed. 

Taking a modest salary and drawing the remainder as dividends remains the most tax-efficient approach in 2026/27.

What has changed for 2026/27?

Dividend tax rates are increasing by two percentage points across basic and higher rate tax bands from 6 April 2026:

bands from 6 April 2026:

This makes dividends more expensive than they were last year. The savings from operating as a limited company and drawing a salary plus dividends (compared to drawing the same income as a salary only) have reduced from approximately £5,173 in 2025/26 to approximately £3,839 in 2026-27 (based on a £100,000 income package).

That’s still a saving of around 3.8% on your total drawings. The gap has closed, but not enough to change our recommendation. 

What is the most tax-efficient salary for directors in 2026/27?

For most director-shareholders, we continue to recommend a salary of £12,570 (£1,047.50 per month) – the same as last year.

Here’s why:

• It uses your full tax-free Personal Allowance (assuming this is your only source of income), meaning no Income Tax is due on the salary
• It sits above the Lower Earnings Limit, which means you accumulate National Insurance credits towards your State Pension
• The salary is offset against company profits, reducing your Corporation Tax liability — and that Corporation Tax saving exceeds the Employer’s NI cost

You might wonder whether it makes sense to reduce your salary to a lower threshold in light of the rising dividend tax rates. It doesn’t, and here’s why:

A salary below £6,708 (the Lower Earnings Limit for 2026/27) would not earn NI credits towards your State Pension. That is a meaningful long-term cost for a short-term tax saving that, frankly, does not stack up in the numbers.

How does Employer’s National Insurance (NI) fit in? 

The Employer’s National Insurance secondary threshold remains at £5,000 for 2026/27. This means Employer’s NI at 15% applies to wages above that level.

• Sole directors: You’re not eligible for the Employment Allowance (which is only available to companies where the only employee paid above the secondary threshold is a director). So a salary of £12,570 will attract Employer’s NI. However, the salary itself is deductible against your company’s profits, and the resulting Corporation Tax saving outweighs the Employer’s NI cost, making it worthwhile overall.
• Companies with two or more directors: The Employment Allowance (up to £10,500) offsets the Employer’s NI entirely at this salary level, so there is no Employer’s NI cost at all.

Comparing scenarios: Sole vs multiple directors

The numbers continue to add up to a salary of £12,570 for both sole directors and those in companies with multiple directors.

Employer’s NI payment schedule for 2026/27

For sole director companies paying a salary of £12,570, Employer’s NI of approximately £1,135.50 is due across the year via PAYE. Employer’s NI will accrue through the PAYE scheme and typically becomes payable from month 4 once cumulative director thresholds are exceeded:

You’ll need to make sure you’re budgeting for these payments from the summer onwards.

The dividend picture: Still worthwhile, but worth knowing:

To put the 2026/27 position in plain terms: a director drawing a £100,000 package as salary plus dividends will save approximately £3,839 compared to drawing the same amount as salary alone. Last year, the savings were £5,173.

The rise in dividend tax has made things more expensive from 6 April 2026; there’s no getting around it. But a saving of nearly £4,000 per year is still a meaningful sum, and the limited company structure continues to deliver it.

For most TLC clients, a combination of a £12,570 salary and dividends remains the most tax-efficient strategy available.

When you might need a bespoke strategy

The approach above works well for most director-shareholders, but it’s not universal. You may need a different plan if any of the following apply:

• You have income from outside your limited company (for example, rental income from a property portfolio)
• Minimising overall tax across your company and personal position matters more to you than maximising take-home pay
• You’re planning to draw between £100,000 and £125,000 in total income, where the tapering of the Personal Allowance creates a particularly punishing effective tax rate
• You have other income exceeding £50,000 from separate sources

If any of these situations apply to you, or if you’d like to sense-check your strategy for 2026/27, get in touch, and we’ll work through the right approach for your circumstances.