Plenty of directors run a company alongside a full-time job. The job's salary uses your Personal Allowance and part of your basic-rate band before the company pays you anything, so the usual £12,570 salary advice does not carry over. Here is how the company income is taxed for 2026/27 and the split that usually works.
Written by James Whitfield · Last checked 19 October 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
When you have a PAYE job, company dividends are added on top of your employment income. With a £40,000 job, only £10,270 of dividends fits in the basic-rate band (the first £500 tax-free, the rest at 10.75%); everything above is taxed at 35.75% for 2026/27.
A small director's salary is still usually worth paying: up to £5,000 there is no employer NI, no employee NI (National Insurance is worked out separately for each job) and the company saves corporation tax. On £30,000 of company profit, a £5,000 salary leaves a basic-rate employee £147.88 better off than dividends alone, and a higher-rate employee £397.88 better off.
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Income tax is worked out on your total income for the year. Employment income uses the Personal Allowance and the basic-rate band first, then dividends are added on top to decide which dividend rate applies.12
So with a £40,000 job, the basic-rate band has £10,270 left (£50,270 − £40,000). The first £500 of dividends is covered by the dividend allowance, the next £9,770 is taxed at 10.75%, and anything above that at 35.75%. With a £60,000 job every dividend pound above £500 is at 35.75%, and once total income passes £100,000 you start to lose the Personal Allowance.
Any salary the company pays you is also taxed at your marginal rate, because your Personal Allowance is already used by your job. Your employer's payroll and the company's payroll each need the right tax code; the company payroll will usually operate code BR (20%) or D0 (40%) on your director's salary.
Class 1 National Insurance is normally calculated separately for each job, so the company salary has its own thresholds.3 (The exception is where the employers carry on business in association, which an unrelated employer and your own company normally do not.) For 2026/27 the company pays no employer NI on the first £5,000 and you pay no employee NI below £12,570 a year from that job.4
Up to £5,000, the salary therefore costs only income tax at 20% or 40%, while the company saves corporation tax of 19% or more on it. A dividend from the same profit is taxed twice: corporation tax first, then 10.75% or 35.75%. Above £5,000 the company pays 15% employer NI and the advantage disappears for a basic-rate employee.
The company makes £30,000 before any director's salary. All post-tax profit is paid out as dividends. England, 2026/27, single director, no Employment Allowance.
| £40,000 job: dividends onlyCT £5,700; dividend tax £6,066 | £18,234.00 |
| £40,000 job: £5,000 salary + dividendsCT £4,750; salary tax £1,000; dividend tax £5,868.12 | £18,381.88 |
| £40,000 job: £12,570 salary + dividendsEmployer NI £1,135.50; salary tax £2,974 | £18,254.82 |
| £60,000 job: dividends onlyDividend tax £8,508.50 | £15,791.50 |
| £60,000 job: £5,000 salary + dividendsSalary tax £2,000; dividend tax £7,060.62 | £16,189.38 |
| £60,000 job: £12,570 salary + dividendsOnly £11.44 more than £5,000 | £16,200.82 |
| Best simple choice in both cases | £5,000 salary |
Figures are the company income only; your job's own take-home is unchanged. A £12,570 salary is roughly break-even against £5,000 and adds payroll cost and complexity, so £5,000 is the cleaner choice. If your job already gives you a qualifying year for the State Pension, the company salary does not need to reach the £6,708 lower earnings limit.
If your job already takes you into the higher-rate band, most dividends cost 35.75%. Leaving profit in the company defers that tax until you draw it, ideally in a year when your employment income is lower, such as after leaving the job or in retirement.
An employer pension contribution from the company is another option: it is deductible for corporation tax, has no National Insurance and does not count as your income for the £100,000 Personal Allowance taper. It counts towards your £60,000 annual allowance alongside any pension saving through your job.5
1. Register the company as an employer and run payroll if you pay yourself a salary, reporting each payment on time through RTI.
2. Declare dividends with a board minute and a dividend voucher.
3. Report dividends above your allowances to HMRC, usually on a Self Assessment return, and pay by 31 January after the tax year.1
4. Check your job's tax code each April; HMRC sometimes moves part of your Personal Allowance to the company payroll by mistake.
Usually a small one. Up to £5,000 a year there is no employer or employee National Insurance, the company saves corporation tax on it, and you pay income tax at your job's marginal rate. That generally beats taking the same profit as a dividend.
They are added on top of your salary. The first £500 is tax-free; dividends inside the basic-rate band (up to £50,270 of total income) are taxed at 10.75%, above it 35.75% and above £125,140 39.35% for 2026/27.
National Insurance is calculated separately for each job, so the company salary has its own thresholds. Below £5,000 there is no employer NI and below £12,570 a year no employee NI on that salary.
Yes. There is no requirement to pay a director a salary. You will just miss the corporation tax saving a small salary gives, and you still need to report the dividends to HMRC.
Not if you are a director and the only employee paid above £5,000. A £5,000 salary has no employer NI anyway, so the allowance would not help.
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.