What's the optimum directors’ salary and dividend mix for 2025/26?
Small companies usually pay their directors a mix of salary and dividends; traditionally set to avoid income tax and national insurance. However, the traditional low directors' salary is no longer optimal when it comes to saving tax.
The table below shows that a higher than usual directors' salary of £12,570 can produce overall tax savings of up to £1,311.
Optimum Directors Salary
The optimal Directors Salary is now, in almost all cases, £12,570 per year.
If Employment Allowance is available to your company (you have other employees) then you'll benefit from the full savings of £1,311 per Director!
If you, as the Director, are the only employee then Employment Allowance is not available. You'll need to make PAYE payments throughout the year totalling around £1,136 but for this extra admin you'll still save a worthwhile £472 in tax overall.
Dividends
Dividends are taxed on the directors’ Self-Assessment Tax Return at 8.75%. In addition to your Directors' Salary, dividends can be paid up to £37,700 (presuming no other income sources) before you cross the Higher Rate tax threshold over which dividends are taxed at 33.75%.
Dividends paid all the way up to the Basic Rate threshold, would produce a personal tax bill of around £3,255.
More than ever, personal circumstances must be carefully considered to give the best results.
Clients of ours will shortly receive our personalised recommendation.
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