What Salary Should a Company Director Take?

As a company director, you will pay yourself differently to your employees. The money in your business account belongs to the company, not you. Therefore, it must be extracted to become yours. The method by which you choose to extract this money is known as remuneration planning.

It is common for directors to receive an annual salary of £12,570 through the pay as you earn (PAYE) system. This is widely used as a baseline approach, with the rest topped up with remuneration methods like dividends.

There are lots of remuneration methods available, but the key ones include salary, dividends, and pension contributions.

Topping up your salary with dividends is regarded as the most tax-efficient way of receiving income because they are taxed at a lower rate than income tax.

While generally considered the “best practice”, it is important to remember that remuneration planning is not a “one-size-fits-all” strategy and can look different for everyone depending on circumstance.

The Optimal Salary for 2025/26

An annual salary of £12,570 with the rest topped up by dividends is considered the standard by many business owners, but why is this?

This figure aligns with the personal allowance for tax and the primary National Insurance (NI) threshold, meaning that directors qualify for a state pension without paying personal income tax or employee NI.

However, this is simply a starting point, not a rule, and directors need to figure out where the rest of their tax efficient remuneration comes from.

It’s important to remember that what works for some directors may not work for others, and there will be circumstances where this is not always optimal.

Paying Yourself in Dividends

Dividends are often used to “top up” income because, in the right circumstances, they can be more tax-efficient and flexible than salary.

They are not subject to NI, are taxed more favourably than salary, and fit naturally into shareholder remuneration planning.

The “right” mix of salary, dividends, and other extraction methods depends on a number of factors which your accountant should map out for you.

Factors that can Influence a Director’s Salary

As mentioned, there is no clear answer for what exact salary a director should take as it is dependent on the person and their circumstances. Factors that can influence a director’s salary include:

• Company profitability and cash flow
• Long-term business plans and reinvestment models
• Personal financial needs and lifestyle
• Family circumstances and other income
• Future plans (exit, sale, retirement)

Common Mistakes Directors Make when Paying Themselves

Knowing the mistakes that can be made when paying yourself can prevent you from encountering them in the future, these include:

• Defaulting to £12,570 without reviewing suitability: while regarded as the best practice, it is still best to make sure that it suits your situation.
• Taking too much via dividends and forgetting future tax bills: dividends should support a plan, not replace one.
• Failing to review remuneration annually: many directors set a salary once and never review it. Reviewing remuneration annually means it can be adapted based on changes.

Key Takeaways

Remember to review your plans regularly as tax rules and thresholds change year to year and businesses evolve. It is unlikely that you will find the perfect remuneration plan online because there’s no one-size-fits-all.

In short, a £12,570 salary topped up with dividends is a useful benchmark for 2025/26, but not a universal solution.

The best way to know what will work best for you is to speak to an accountant who can give you tailored advice. If this sounds like something you would like assistance with, we can help.