Salary or dividends this year?

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For a director of their own limited company, how you pay yourself is a choice, and the tax-efficient mix isn't fixed — it shifts with the current tax bands, the dividend allowance, and National Insurance thresholds, which change often enough that last year's answer can be wrong this year.

Salary: counts as a deductible business expense (it reduces Corporation Tax), but it's subject to Income Tax and National Insurance, both employee's and employer's, above the relevant thresholds. It also counts as "relevant earnings" — which matters for pension contributions and building qualifying years towards the state pension.

Dividends: paid out of profit after Corporation Tax, so there's no further Corporation Tax relief on them. They're taxed at lower rates than salary, and the first slice each year is tax-free under the dividend allowance — but dividends can only be paid from actual retained profit, and they don't count towards NI contribution years.

The common structure: a small salary — often set at or near the NI threshold so it still counts as a qualifying year without triggering much NI — topped up with dividends for the rest. The exact split depends on your total income, whether you have other earnings, and what the thresholds are set at for the current tax year.

This is one we genuinely can't give you a stock answer on in a blog post — it depends on your specific numbers and changes with each Budget. Send us your situation and we'll run the actual comparison for the year you're in.