You run a limited company and need money out of it. This compares every legitimate mix — salary, dividends and an employer pension contribution — on the same profit and the same cash in your pocket.
On the figures so far
Take £12,570 as salary and £36,276 as dividends, and put £23,551 into a pension from the company.
Every figure came from you, and the gap is £8,737 — well outside rounding.
Refine it in 6 questions below.
The decision
Take £12,570 as salary and £36,276 as dividends, and put £23,551 into a pension from the company.
£8,737 better than dividends only, no salary, on the same figures.
Each of these has to be true. Where your answers settle it we have said so; where they cannot, the test is yours to check.
You are a director of a UK limited company. — we cannot tell from your answers
Companies Act 2006
The company has distributable reserves — accumulated post-tax profit — at least equal to the dividend. — met, on your answers
Companies Act 2006 s. 830
The work you do for the company is real, and the salary reflects it. — we cannot tell from your answers
CTA 2009 s. 54 — wholly and exclusively
Employer pension contributions are paid by the company, to a registered scheme, in the accounting period you want the deduction in. — not met, on your answers
Contributions are relieved when paid, not when accrued. A contribution accrued at the year end and paid afterwards falls into the next period.
FA 2004 s. 196 — relief on payment
You have not triggered the Money Purchase Annual Allowance by flexibly accessing a pension. — met, on your answers
FA 2004 s. 227ZA
This is information, not tax or financial advice. It shows how the rules apply to the figures you entered — it does not know the rest of your circumstances. Worth checking with an accountant before you act.
Rates as at 6 April 2026 — the 2026/27 tax year.
The figures above are only as good as what sits behind them. These are the records HMRC would ask for.
| When | What | If you miss it |
|---|---|---|
| On or before each payday | File the RTI Full Payment Submission for any salary. | £100 per month late-filing penalty per PAYE scheme, and the payment is unevidenced. |
| 22nd of the month after the tax month (19th if paying by post) | Pay PAYE and NI over to HMRC. | Interest, and a penalty rising with the number of defaults in the year. |
| Before the company's year end | Pay any employer pension contribution you want deducted this period. | The deduction slips into the next accounting period — relief delayed by a year. |
| 31 January after the tax year | Pay the personal tax on dividends through Self Assessment. | Interest from 1 February, and a 5% surcharge at 30 days, 6 months and 12 months. |
| 9 months and 1 day after the company year end | Pay corporation tax. | Interest runs from that date; the return itself is due at 12 months. |
Register as an employer if you have not, then run payroll and file an FPS on or before each payday. A salary that is never reported through RTI does not count as one.
Take the last management accounts, deduct the corporation tax provision, and deduct dividends already paid this year. What is left is what can lawfully be declared.
www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company
A board minute dated before the payment and a voucher per shareholder. HMRC's first question on an enquiry is to see them, and they cannot be written afterwards.
It must come from the company, to a registered scheme, and be received before the year end. An employer contribution carries no NI for either side and is deductible.
Dividends go in the 'dividends from UK companies' box. Register for Self Assessment by 5 October after the tax year if this is your first.
Three situations, worked through. They use the same rules as the tool above, so you can check the arithmetic against a case near your own.
The classic low-salary, high-dividend split. The salary is deductible against 19% corporation tax and costs no income tax, and the dividends stay in the ordinary rate band.
The pension contribution is worth most here: it removes profit taxed at 26.5% and carries no NI, and it keeps the dividend out of the higher rate.
When the cash is genuinely needed, the pension cannot help and the answer is the plain split. Note how much of the gap between the two examples is the pension, not the split.
Every figure above comes from one of these. Where we have interpreted rather than calculated, the tool says so.
Corporation tax is 19% up to £50,000 of profit and 25% above £250,000, with a 26.5% effective marginal rate in between.
Dividends are paid out of post-tax profit and are taxed at 8.75%, 33.75% and 39.35% after the dividend allowance.
A dividend may only be paid out of profits available for the purpose — distributable reserves.
Salary is deductible for corporation tax but carries employee and employer National Insurance; dividends carry neither.
Employer pension contributions are deductible in the period paid and are not earnings for NI.
The annual allowance tapers by £1 for every £2 of adjusted income above £260,000, to a floor of £10,000.
Below it there is no income tax, and the salary is still deductible against corporation tax. Above it you start paying income tax and National Insurance on money that could have come out as a dividend instead. The exact best figure depends on whether the company can claim the Employment Allowance, which a sole director company generally cannot.
Yes, and it is common — there is no rule that a director must take a salary. But no salary means no qualifying year for the State Pension from this source, and it wastes the personal allowance if you have no other income.
The excess is not a dividend. It is treated as a director's loan, which triggers a section 455 charge of 33.75% on anything still outstanding nine months after the year end, refundable only when it is repaid. It also has to be disclosed in the accounts.
The company gets its deduction regardless, but you are personally charged on contributions above your annual allowance, which cancels the benefit. Unused allowance from the three previous years can be carried forward if you were a scheme member in those years.
Substantially. Between £100,000 and £125,140 the personal allowance is withdrawn at £1 for every £2, which makes the effective rate on that band about 60% — and on dividends in that band the position is worse still. This is usually where the pension route starts to win outright.
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