Remuneration planning and how it could benefit you and your company

How you choose to pay yourself from your company can have a significant impact on your tax position and overall financial planning. A key decision when considering extracting money from your company is how to balance salary and dividends, taking into account tax efficiency, cash flow, and wider personal objectives. The following fact sheet outlines the main remuneration planning options available and the points to consider when deciding on the most appropriate approach.

Dividends

Dividends are paid out of post-tax profits in a company and are paid to shareholders. Dividends are voted per class of shares, and in the instance where two shareholders hold the same amount and same class of shares, it is not possible to vary amounts paid between shareholders.

Corporation tax is paid on the profits of the company at a rate between 19% and 26.5% before the dividend is paid to the individual. Income tax is then paid on the dividend at the dividend tax rates by the individual.

For 2026/27, these rates are 10.75%, 35.75% and 39.35% for basic, higher and additional rate taxpayers respectively.

This can, potentially, make dividends an expensive option, particularly given that the rates increased by 2 percentage points between 2025/26 and 2026/27.

Each individual is entitled to a £500 tax-free dividend allowance. This allowance should be made use of every year to maximise the amount of money that can be withdrawn from a company tax-free.

Salary

With dividend rates increasing but income tax rates remaining unchanged, this has been resulting in a shift towards salaries being taken due to the tax efficiencies this creates when considered correctly.

A salary is tax-deductible from a company’s taxable profits. This therefore saves the company corporation tax at the applicable corporation tax rates.

Where more than one director takes a salary, and each are paid above £5,000, the company may be entitled to claim the employment allowance, subject to other criteria being met. This allowance means that the company does not have to pay employers national insurance on the salaries taken, up to a maximum of £10,500 annually. This is particularly important following the increase in employers NIC rates from April 2025 from 13.8% to 15%.

Income tax and employee national insurance is paid by each individual on the salary and this is deducted at source and paid to HMRC by the company following the payroll submissions. The level of any salaries paid need to be reasonable and justifiable for the role that individual performs in the company.

Because tax is deducted at source this may mean that no tax is due for payment following the completion of the individual’s self-assessment tax return. This can help with personal financial planning as it means the amounts received from the company are already net of tax and it should not be necessary to retain amounts for future tax liabilities.

How remuneration planning could help you

Our approach to remuneration planning is tailored to you, your business and your objectives.

We can support you with discussions around your individual circumstances and any specific financial requirements you have regarding extracting money from your company. From here we can prepare detailed calculations based on various personal scenarios to compare different salary and dividend combinations. The tax landscape continues to evolve which means that how you extract money from the company is no longer a straight forward answer. To maximise tax efficiencies it is important to consider a wide variety of circumstances which makes remuneration planning an important and individual exercise for every business.

By modelling these various scenarios, we can help you understand the impact of each approach and agree on a strategy that works both now and as your business evolves.

We also have an in-house payroll team who are able to assist with the next steps should you wish to start taking a salary from your company.

Need help?

Get in touch with your usual Larking Gowen contact or send an enquiry to our team:

• 0330 024 0888
• Submit an enquiry

Abi Davis | Senior | Based in Norwich, Norfolk