If you run a limited company and pay yourself through a combination of salary and dividends, understanding how much you can take — and how much tax you’ll pay on it — is genuinely useful, not just box-ticking. The question how much can I pay myself in dividends sits at the heart of how most director-shareholders structure their income every year.

The answer has a few layers. There’s what you’re legally allowed to take (based on available profits), what you’re entitled to take tax-free (the dividend allowance), and what the most tax-efficient strategy looks like given the 2026/27 rates. Each layer matters, and getting any one of them wrong can either cost you money or create an HMRC problem you didn’t see coming.

This post walks through each of those layers clearly, with the current figures, so you can make an informed decision — or at least have a better conversation with your accountant.

Before we get into allowances and rates, there’s a fundamental rule that trips up more directors than you’d expect. You can only pay dividends from your company’s distributable profits — that means profits left over after corporation tax, from the current financial year or accumulated from previous years.

You cannot pay yourself a dividend to cover a cash shortfall, to top up a slow month, or based on projected future profits. If you pay a dividend when there aren’t sufficient retained profits to support it, it becomes an unlawful distribution. HMRC and Companies House take that seriously, and it can create both a personal tax liability and a legal problem for the company.

In practice, this means your dividend decisions should be driven by your management accounts — you need to know what your current profit position looks like before declaring anything. For directors who don’t have regular bookkeeping in place, this is exactly where things go wrong. A dividend that looks fine in your bank account can be unlawful on paper if the numbers haven’t been tracked properly.

The process itself is also worth noting. To declare a dividend, you need to hold a directors’ meeting (even if you’re the sole director), record the decision in minutes, and issue a dividend voucher for each payment showing the date, company name, shareholder names, and the amount. It’s not burdensome, but it does need to be done properly.

For the tax year running from 6 April 2026 to 5 April 2027, the key figures are:

• Personal allowance: £12,570 — your first £12,570 of total income is tax-free
• Dividend allowance: £500 — the first £500 of dividend income above your personal allowance is also tax-free
• Basic rate dividend tax: 10.75% — applies to dividends within the basic rate band (up to £50,270 total income)
• Higher rate dividend tax: 35.75% — applies once your total income exceeds £50,270
• Additional rate dividend tax: 39.35% — applies above £125,140

It’s worth noting that the dividend allowance has fallen considerably over recent years — it was £5,000 as recently as 2017/18. At £500, it’s now a relatively small buffer. If you’re taking meaningful dividends, the vast majority of them will attract tax at whichever rate applies to your income band.

One important point on how the tax bands work: to work out which rate applies to your dividends, HMRC stacks your income in a specific order — non-savings income (salary, rental income) first, then savings income, then dividends. So dividends are always treated as the top slice of your income, which affects where they fall in the tax bands. If your salary already takes you close to the higher rate threshold, even relatively modest dividends can tip you into the 35.75% band.

The strategy we most commonly see working well for director-shareholders in 2026/27 is a low salary combined with dividends up to the basic rate band limit — staying below the point where the higher rate dividend tax of 35.75% kicks in.

In practical terms, that looks something like this:

• Salary of £12,570 (the personal allowance) — this uses up the full personal allowance and, as a wage, is a deductible cost for the company against corporation tax. Some directors opt for a lower salary in the £5,000–£6,500 range to avoid National Insurance contributions, which can save additional cost depending on whether the company has more than one employee and can claim the Employment Allowance.
• Dividends of up to £37,700 — this fills the basic rate band (£50,270 minus the £12,570 salary). The first £500 of this is covered by the dividend allowance; the remainder is taxed at 10.75%.

Based on a £12,570 salary and £37,700 in dividends, the total dividend tax bill for 2026/27 works out at approximately £3,999. That’s a meaningful amount, but considerably less than you’d pay if the same income came through as salary subject to Income Tax and National Insurance at higher rates.

The right salary level depends on your specific circumstances — particularly whether you’re eligible for the Employment Allowance — so it’s worth modelling both options before committing to one for the year.

Once your total income — salary plus dividends — crosses the £50,270 threshold, the picture changes significantly. Dividends above that level are taxed at 35.75%, which is a substantial jump from 10.75%. For every additional £1,000 of dividends above that point, you’re paying £357.50 in tax rather than £107.50.

This doesn’t mean you shouldn’t take dividends above £50,270 — if the profits are there and you need the income, it may still make sense. But it does mean the comparison with leaving profits in the company (and paying corporation tax at 19% or 25% instead) becomes more nuanced at higher levels. For some directors with larger profit pools, retaining more in the company and drawing it down over future tax years can be a more efficient approach.

There’s also an important trap at £100,000. Once your total income exceeds £100,000, your personal allowance starts to taper away at a rate of £1 for every £2 of income above that level. By £125,140, the personal allowance is gone entirely. This creates an effective marginal tax rate of around 60% on income between £100,000 and £125,140 — something that’s easy to stumble into if your dividend payments aren’t planned carefully.

If your company profits are approaching that territory, this is absolutely the point at which proactive tax planning pays for itself many times over. Pension contributions, salary sacrifice, and the timing of dividend declarations are all tools worth considering.

We see the same patterns come up repeatedly, and most of them are avoidable.

Paying dividends without checking available profits

As covered above — taking dividends without up-to-date management accounts is a risk. Even if you’ve always had healthy profits, a slow period or an unexpected tax bill can change the picture quickly.

Getting the salary level wrong

Defaulting to a £12,570 salary without considering whether a lower salary (and no NI cost) might be more efficient is a missed opportunity. The Employment Allowance eligibility question matters here.

Ignoring the £100k personal allowance taper

This one surprises directors who’ve never been near that income level before — and then suddenly are. The effective 60% tax rate in that band is one of the more painful outcomes in the UK tax system, and it’s entirely avoidable with forward planning.

Not keeping dividend paperwork

Minutes and dividend vouchers aren’t optional. HMRC can and does ask for them, particularly during compliance checks. A pattern of large director drawings with no supporting documentation is a red flag.

Assuming last year’s strategy still applies

The basic rate dividend tax rose to 10.75% from April 2026 — a change that some directors haven’t fully absorbed yet. Run your numbers for 2026/27 specifically rather than relying on assumptions from previous years.