The headline numbers — standard extraction
Targeting £80,000 extraction from a limited company in 2026/27, using the conventional structure of £12,570 salary + dividends, the company needs gross profit of around £86,739 before extraction to fund it. The owner's take-home is approximately £66,884 a year — but with several levers to push that figure significantly higher without changing turnover.
| Standard salary + dividend structure | Amount |
|---|---|
| Director's salary (£12,570 — uses PA, no income tax, no employee NI) | £12,570 |
| Pre-extraction company profit needed | £86,739 |
| Corporation tax (19% small profits + 26.5% marginal slice) | −£19,236 |
| Distributable profit (available as dividends) | £67,503 |
| Dividend tax on extraction (8.75% basic / 33.75% higher rate) | −£13,189 |
| Owner's take-home | £66,884 |
Why £12,570 salary is almost always optimal
For a one-person Ltd company with the £10,500 Employment Allowance available against employer NI, £12,570 is the salary that:
- Uses the full personal allowance (no income tax)
- Is at the NI primary threshold (no employee NI)
- Triggers employer NI on the slice above £5,000, but the Employment Allowance offsets it entirely (until you hire a second person and the allowance is consumed)
- Counts as a qualifying year for State Pension purposes
- Is tax-deductible for the company (reducing corporation tax)
Going higher than £12,570 introduces employee NI (8% above the threshold) and income tax. Going lower under-uses the personal allowance and the State Pension qualifying year benefit. The director extraction planner models edge cases (multiple directors, mid-year incorporation, etc.).
Three levers that materially increase take-home without increasing turnover
- Employer pension contribution from the company. Up to £60,000 a year (annual allowance), the company can make pension contributions on your behalf — fully corporation-tax deductible, not part of personal income tax. £20,000 of company pension contribution costs the company about £14,700 net of corporation tax saved (at 26.5% marginal). This is the single biggest lever for owner-managers.
- Electric company car. The Benefit-in-Kind charge on a fully-electric company car is just 3% of list price for 2026/27 (rising 1pp per year). For a £45,000 EV, that's a £1,350 BIK — a tiny tax cost compared to taking £45,000 of post-corporation-tax profit and buying the car personally with post-dividend-tax pounds. The EV company car calculator shows the saving.
- Spouse / civil partner as employee, if there is genuine work. If your spouse does real work for the business (admin, bookkeeping, marketing), paying them a market-rate salary up to their personal allowance shifts £12,570/year of profit out of your higher tax bands and into theirs. HMRC requires the work to be real and the salary to be commercially reasonable. Done right, this saves about £3,000-£5,000 a year in family-level tax. Done wrong, it's tax avoidance and unwound.
Other decisions worth thinking through
- Pension input vs dividend extraction. Every £1 contributed to your pension by the company is £1 not subject to dividend tax later. For a higher-rate director, £100 of dividend extracted leaves £66.25 in the bank; £100 of company pension contribution lands £100 in the pension. The pension annual allowance calculator checks the £60,000 limit.
- Director's loan account discipline. Don't run an overdrawn director's loan. The Section 455 charge (33.75% on unrepaid balances after 9 months) and the deemed BIK both bite hard. If you need cash personally, declare a dividend formally rather than just take it.
- VAT registration. Mandatory at £85,000 turnover threshold. The Flat Rate Scheme is operationally simpler but rarely tax-advantageous now; standard VAT with proper bookkeeping is usually better. The VAT calculator models both.
- The R&D claim, if you genuinely do qualifying R&D. If your business has genuine technical innovation activity (developing new software architecture, novel processes, etc.), R&D tax credits can be substantial. The relief regime tightened in April 2024; only file with a specialist firm. Don't fall for "we'll find R&D in your business" cold-call agencies — most of those claims are now being unwound by HMRC investigations.
The most common mistake
Two compete for first place. Mistake 1: drawing dividends without checking distributable profit. Dividends paid from cash that wasn't post-tax retained profit become director's loans and trigger Section 455. Mistake 2: ignoring pension contributions because "I'll pay myself out and invest separately". The numbers don't support this — £20,000 to a company pension creates more retirement value than £14,700 of post-extraction cash in an ISA, by a margin of about 30-40%. Many small business owners don't run the comparison.
Sources
HMRC Corporation Tax · Employment Allowance · Dividend tax · Company car BIK.