How much can I pay myself in dividends? It is one of the questions we hear most from limited company directors, and understandably so. Dividends are a genuinely tax-efficient way to draw money from your company, but the amount you can take is not simply whatever you feel like paying yourself.

Three things set the ceiling: what your company has actually made after corporation tax, where your personal income sits, and which dividend tax rates apply once everything is added together. The £500 dividend allowance for 2026/27 and the tax rates that came into effect from 6 April 2026 are the numbers most directors need to know right now.

Below we set out how it all works in practice, including the paperwork your company needs to get right every time you declare a dividend.

Before you even think about tax rates, there is a legal limit on how much you can take out. Under the Companies Act 2006, dividends must be paid only from distributable profits. These are your company’s accumulated realised profits minus its accumulated realised losses. You cannot simply look at what is sitting in the business bank account and assume it is all available.

In practice, this means you need up-to-date management accounts or at least a clear picture of your retained profits after corporation tax. If your company has made £60,000 of profit after tax across this year and previous years combined, that is the upper limit of what can legally be distributed.

Paying a dividend beyond your distributable profits is an unlawful dividend. HMRC and Companies House take these seriously, and an unlawful dividend is technically recoverable from the shareholder who received it. We raise this not to be alarmist but because we have seen directors take out money on the assumption that a good month means the funds are available. A brief check of your retained position before each dividend is a sensible habit.

If your company’s reserves are thin but you still need to draw income, this is usually the moment to look at whether a salary increase or a directors’ loan is more appropriate.

From 6 April 2026, the dividend allowance sits at £500 per tax year. This is the amount of dividend income you can receive without paying dividend tax on it. The allowance has fallen considerably from the £2,000 it stood at just a few years ago, so if your planning has not been updated, it is worth revisiting.

Once you exceed the £500 allowance, dividends are taxed according to your income tax band. To work out which band applies, you add your total dividend income to all your other income for the year, including salary, rental income, or any other taxable receipts.

The rates from 6 April 2026 are:

• Basic rate (income up to £50,270): 10.75%
• Higher rate (income between £50,271 and £125,140): 35.75%
• Additional rate (income above £125,140): 39.35%

These rates are meaningfully lower than the equivalent income tax rates on salary, which is precisely why the salary-plus-dividends approach works so well for most directors. A basic-rate taxpayer pays 10.75% on dividend income compared with 20% on salary above the personal allowance. That gap is real and worth planning around.

If your dividends exceed both your unused personal allowance (£12,570 in 2026/27) and the £500 dividend allowance, you will need to report the income to HMRC through a Self Assessment tax return.

Most accountants, ourselves included, recommend a split strategy for directors: a relatively low salary combined with dividends to make up the rest of your income. The salary establishes a National Insurance record and uses some or all of your personal allowance, while dividends are taxed at the lower dividend rates rather than as employment income.

For 2026/27, there are three salary levels we commonly discuss with directors. A salary of £5,000 avoids employer and employee National Insurance entirely. A salary of £6,708 reaches the lower earnings limit, which means you accrue a qualifying year for the state pension without actually paying National Insurance contributions. A salary of £12,570 uses up the full personal allowance, meaning no income tax is due on the salary itself, though it does trigger employee National Insurance contributions above £12,570 and employer contributions above £5,000.

Which level makes most sense depends on whether your company can claim the Employment Allowance (which offsets employer National Insurance), your personal circumstances, and whether you have other income sources. There is no universal right answer, but for a sole director company that cannot claim the Employment Allowance, a salary of around £6,708 or £5,000 typically comes out ahead.

The practical implication for dividends is this: if your salary already accounts for a portion of your personal allowance, more of your dividend income is covered by the remaining allowance before dividend tax kicks in. Getting the salary level right is the foundation of the whole approach, and it is something worth reviewing each April.

Dividends are not the same as drawing a salary. You cannot simply transfer money from the company account to your personal account and treat it as a dividend after the fact. HMRC expects a proper process, and getting it wrong can mean the payment is treated as a directors’ loan or unlawful distribution instead.

For each dividend, two things need to happen:

• A directors’ meeting must be held to formally declare the dividend, even if you are the only director. Minutes of that meeting should be kept on file.
• A dividend voucher must be prepared for each payment. This document records the date, the company name, the shareholders receiving the dividend, the amount per share, and the total paid.

These are not bureaucratic niceties. They are the evidence that the payment was a lawful dividend rather than an informal extraction. If you are ever subject to an HMRC enquiry, proper dividend documentation is one of the first things that will be requested.

It is also worth noting that dividends are not a business expense and cannot be deducted from your profits before corporation tax is calculated. The company pays corporation tax on its profits first, and dividends are then paid from the post-tax amount. This is different from salary, which is a deductible business expense. Both approaches have tax implications, which is why the numbers need to be looked at together rather than in isolation.

If you are paying dividends to multiple shareholders, make sure the amounts are proportional to shareholdings unless your articles of association or a shareholders’ agreement specifically allow alphabet shares or different dividend rights.