Director extraction in one paragraph: for most director-shareholders, the optimal 2026/27 extraction is salary up to the £5,000 secondary NI threshold (avoids employer NI), plus salary up to £12,570 (uses personal allowance), with everything else as dividends. But the math shifts at three profit pivot points: £50,000 (small-profits limit), £125,140 (additional-rate threshold) and £250,000 (main CT rate kicks in fully). This page walks through the optimal split at each level.
The 2026/27 rate environment
| Tax | Rate | Trigger |
|---|---|---|
| Corporation tax small-profits | 19% | Profits up to £50,000 |
| Corporation tax marginal relief | ~26.5% effective | Profits £50k - £250k |
| Corporation tax main rate | 25% | Profits over £250,000 |
| Employer NI (secondary) | 15% | Salary above £5,000 |
| Employee NI | 8% / 2% | Salary above £12,570 |
| Income tax (basic) | 20% | Salary up to £50,270 |
| Income tax (higher) | 40% | £50,271 - £125,140 |
| Income tax (additional) | 45% | £125,141+ |
| Dividend basic | 8.75% | Below £50,270 total income |
| Dividend higher | 33.75% | £50,270 - £125,140 |
| Dividend additional | 39.35% | £125,141+ |
Scenario 1: £20,000 company profit (sole director-shareholder, no other income)
Optimal split: salary £12,570 (uses personal allowance), remaining ~£7,000 of profit available to extract.
- Salary £12,570: zero income tax (within PA), zero employee NI (within PT), employer NI on (£12,570 - £5,000) = 7,570 × 15% = £1,136
- Salary costs the company: £12,570 + £1,136 = £13,706, but salary is deductible against CT
- CT saving from salary deduction: £13,706 × 19% = £2,604
- Net cost of salary: £13,706 − £2,604 = £11,102 (you receive £12,570 in cash for £11,102 of company resources)
- Remaining profit available: £20,000 − £13,706 salary cost = £6,294. After CT at 19%: £5,098 distributable as dividend.
- Dividend £5,098, all within remaining basic-rate band, taxed at 8.75% after £500 dividend allowance: tax £402.
- Net cash to director: £12,570 (salary) + £5,098 − £402 = £17,266 from £20,000 profit (86.3%).
Scenario 2: £60,000 company profit (still in marginal-relief band)
At this level, CT effective rate is ~21% (marginal-relief band kicks in above £50,000). Salary up to £12,570, extract rest as dividends. You'll cross into higher-rate dividend on personal income.
- Salary £12,570, employer NI £1,136 (as above), net cost ~£11,102
- Remaining company profit: £60,000 − £13,706 = £46,294. CT on this at 0 CT. Distrib ~21% (uses small-profits then marginal): roughly £9,500 CT. Distributable dividend: £36,794.
- Personal income: £12,570 salary + £36,794 dividend = £49,364 total. Just under higher-rate threshold (£50,270).
- Dividend tax: £500 dividend allowance is free, then £36,294 in basic-rate band at 8.75% = £3,176.
- Net cash to director: £12,570 + £36,794 − £3,176 = £46,188 from £60,000 profit (77.0%).
Note: the optimal here is to take dividends only up to the higher-rate threshold — £37,700. Any "surplus" remains in the company for future years.
Scenario 3: £100,000 company profit (well above SP, into marginal relief)
Director with no other income. Extraction now hits higher-rate dividend.
- Salary £12,570, employer NI £1,136
- Profit after salary cost: £86,294. CT at marginal rate (~24% effective above £50k): ~£20,000. Distributable: ~£66,294.
- To keep personal income below £100,000 (avoid PA taper), extract only up to ~£87,430 (= £100,000 − £12,570 salary).
- Of this, £37,700 in basic-rate dividend band at 8.75% (after £500 allowance) = £3,255 tax.
- Remaining £49,230 in higher-rate dividend band at 33.75% = £16,615 tax.
- Total dividend tax: £19,870. Plus £20,000 CT.
- Net cash: £12,570 + £87,430 − £19,870 = £80,130 from £100,000 (80.1%).
- Remaining ~£14,500 sits in the company.
Above £100,000 personal income, the personal allowance tapers (60% effective rate from £100k-£125,140). It's almost always worth pausing extraction at £100,000 personal income, or shifting to pension contributions to avoid the trap.
Scenario 4: £300,000 company profit (above main rate threshold)
CT is now flat 25% on all profits above £50,000 (no marginal relief). Extraction strategy:
- Pay £12,570 salary as usual
- Use pension contributions to extract £60,000-£100,000 (up to your annual allowance) tax-free from the company: deductible against CT at 25%, no personal tax, no NI
- Pay dividends up to your basic-rate band (~£37,700 of dividend income above PA)
- Above that, every £100 of dividend costs £33.75 tax personally + the company has already paid £25 CT on the underlying profit. Combined effective rate: ~50%.
- Pension from company at this point is 25% better than direct dividend extraction.
Worked example: £300,000 profit, take £12,570 salary + £40,000 pension + £37,700 basic-rate dividend = £90,270 extracted, leaving £209,730 of pre-tax profit. CT 25% (after salary and pension deductions): roughly £39,000. Net retained: £170,000 in company for future years.
The pivot points
| Profit level | Optimal extraction strategy |
|---|---|
| £0 - £50,000 | Salary £12,570 + dividends up to basic rate + retain rest |
| £50,000 - £100,000 | Same, but watch the higher-rate threshold on dividends |
| £100,000 - £125,140 | Use pension contributions to avoid PA taper. Cap dividend extraction at ~£100k personal income |
| £125,140 - £250,000 | Pension extraction increasingly favoured. Above £125k, additional-rate dividend at 39.35% |
| £250,000+ | Main CT rate. Use pension up to AA, retain rest in company for future, consider FIC/holding structure for long-term wealth |
Common extraction mistakes
- Drawing the £12,570 salary fully when you have other PAYE income. If you also work elsewhere, your PA is already used; full salary creates income tax. Check first.
- Pushing into higher-rate territory unnecessarily. If you don't need the cash, leave it in the company — future profits can sometimes be extracted at lower rates (e.g., on closure with BADR).
- Not using employer pension contributions. The most tax-efficient extraction route at high profit levels — deductible at 25%, no personal tax, no NI.
- Ignoring spouse opportunities. If your spouse has unused personal allowance and basic-rate band, splitting share ownership can save tax, subject to settlements rules and anti-avoidance.
- Bonuses or salary spikes at year-end. Generally inefficient vs dividend. Use salary only for the strategic NI/PA reasons above.
Sources
Related content for Ltd company directors
- Salary vs dividend calculator
- Dividend tax calculator
- Director's loan accounts (DLA)
- Close investment companies
- Associated companies and CT bands
- Optimal extraction by profit level
- Employer pension contributions
- Closing a company: strike-off vs MVL
- Business Asset Disposal Relief
- Dividend waivers and settlements
How UK Tax Drag holds itself to account
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