Directors Do THIS Before You Pay Yourself

追加: 2026-05-17

[00:00:00]If you pay yourself the same way in 2026 as you did last year, there's a good chance that you'll overpay tax, and not by a small amount either. There's been a key change that shifts how directors should structure their income. And sticking with the old approach could mean missing out on real savings or paying more than you need to. In this video, I'll show you exactly what's changed and more importantly, how to structure your salary and dividends properly for 2026 so you keep more of what you earn without messing up things like estate pension or long-term planning. And a quick one, there's a good chance you're watching this but not actually subscribed. A lot of people say in the comments that they just didn't realize subscribing helps this channel keep growing and it tells YouTube you want straight talk tax advice like this and genuinely I appreciate you for it.

[00:00:55]The sensible starting salary for most directors is still going to be 12,570.

[00:01:01]But here's the catch. The reason why has changed. The salary side of the strategy hasn't completely changed. The dividend side is where things have moved. From the 6th of April 2026, dividend tax increased by two points for basic rate and higher rate taxpayers. So the ordinary dividend rate rises to 10.75%.

[00:01:24]The upper dividend tax rate rises to 35.75%.

[00:01:29]Overall, that's a 22.85% increase in dividend tax. So dividends are still useful, but just not as cheap as they used to be. Which means the real risk now isn't overpaying salary. It's relying too heavily on dividends without realizing it. If your salary is too low and you end up taking more dividends and now those dividends are more expensive.

[00:01:52]So one small decision here increases your total tax bill later. For 2627, 12570 is still your personal allowance.

[00:02:03]So there's no income tax, no employee national insurance. Nice and clean. But there's a catch. Even though you don't pay employee national insurance, your company might. For 2627, employer national insurance is a bigger deal than ever because it kicks in above 5,000 at 15%.

[00:02:28]So if you take 12570, your company is paying employer NIC on the 7570 over the 5,000. Now that works out at £1,13550.

[00:02:41]And this is where a lot of directors go, "Right, fine. I'll just pay myself five grand and avoid the employer and I completely logical, also slightly dangerous. drop your salary to 5,000 and you fall below the lower earnings limit, which means that year doesn't count towards your state pension. One missed year towards your state pension might not feel like much today, but miss enough of them. And future you may be sitting there doing the maths wondering why present you decided to save,00 and accidentally sabotage retirement.

[00:03:20]That's because 6708 gets you above the lower earnings limit. It also preserves your state pension year. It keeps the salary very low and it limits employer national insurance exposure. So naturally the question then becomes right. So 6708 is better than 12570 then. This is where it gets interesting because no, not always. And this is exactly why copying last year's advice or blindly following one optimal number is where directors start leaking money.

[00:03:58]The best salary in 2026 depends on three things. whether you're a sold director, whether you qualify for employment allowance, and how much profit your company is actually making. So, in the next section, let's properly compare 12,570 versus 6,78 because one of them is clearly better, just not for the reason most people think. And just quickly, if you're watching this thinking, I have no idea if I'm doing this right. That's exactly the kind of thing we help directors fix every day. There's a link below if you want us to look at your setup properly.

[00:04:42]Now, this is where things start a split and where one small detail can completely change your strategy. As a sold director company, where you're the only person on payroll, you usually can't claim employment allowance. But on the other hand, a company with a director plus genuine employees, even if they're your spouse, they can. Now, that's up to 10 and a half thousand employer national insurance wiped out.

[00:05:10]Same company structure, same profits, completely different tax outcome. So, instead of guessing, let's actually compare it properly with four different salary levels to see how it looks. 6,78 the state pension qualifying salary 12,570 the full person allowance salary 50,270 the full basic rate salary and 100,000 the higher rate salary just before the person allowance starts disappearing and for the lower salary options will top up with dividends so 6708 and 12570 topped up to 50,270 and the 100,000 salary only with no dividends. And here's why this matters.

[00:06:03]Depending on whether you qualify for employment allowance or not, the best option can flip completely. So in the next part, I'll walk you through the actual numbers side by side. Let's start with the soul director company. Now, this is where most people expect one clear winner because on the surface, one of these looks obviously better, but it isn't. Now, the first thing you'll notice is that the 6,78 salary looks incredibly cheap. And you're not wrong. You get a qualifying state pension year. You get no income tax, no employee NI, and employer NI is only about 256 pounds. So from a cash leaving the company point of view, it's very efficient, which is exactly why a lot of directors stop here and go, "Perfect. That's the number." But here's what they miss. To get to 50,000 total income, you now need a much bigger dividend. And these come from profits already taxed. So, a bigger dividend means more profit is needed, more corporation tax is paid, and it's less efficient overall than it first looks.

[00:07:20]And here's something else that catches people off guard. The dividend tax is exactly the same in the 6,78 salary and the 12,570 salary scenarios. That's because at 6708 you've got unused personal allowance so it covers part of your dividends. At 12570 your allowance is used on salary but your dividend is smaller. So different route same outcome.

[00:07:51]So if dividend tax isn't the difference what actually is? Well for sold directors it comes down to one thing. Do you prefer the lower payroll cost of 6,78 or the larger corporation tax deduction of 12,570?

[00:08:11]6708 means lower NI. It's simpler, less cash out shortterm. 12570 is bigger corporation tax deduction, monthly NI cost to HMRC, but potentially more efficient overall. And which one wins? Well, it depends on your company profits. And if your company profits are low, the corporation tax benefit of paying the highest salary may not be worth as much. But if your company is profitable, especially if you're in the marginal relief band or the main rate band of 25%.

[00:08:45]12,570 as a salary can still make sense. And don't worry if you'd rather not figure out all of this on your own. We're here.

[00:08:53]The links below. And next is where it gets more interesting because everything we've just looked at changes again once employment allowance enters the picture.

[00:09:05]Now let's look at the same company but this time with employees. And even just one genuine employee counts. And they could be a spouse. It doesn't matter.

[00:09:16]They just have to be a genuine employee because this is where the numbers start to move. This table shows exactly why employment allowance is such a big deal.

[00:09:26]The key difference is simple. Employer national insurance effectively disappears. And that changes things quite a bit. In the previous example, 12,570 came with a cost about 1,135 in employer NI. Here that cost is removed. So you're left with no income tax, no employee NI, a qualifying state pension year, a corporation tax deduction, and no employer NI because employment allowance wipes it out.

[00:09:58]Before you were weighing up lower NI with 6708 versus higher corporation tax relief with 12570.

[00:10:07]Now that NI cost is gone. that tradeoff mostly disappears, which makes 12,570 much easier to justify. You're getting the full personal allowance used without the downside we had before. And what about 6,78 now? Well, it still works.

[00:10:26]You still get your state pension year, but you're giving up part of the corporation tax deduction without saving any employer NI in return. So in this scenario, it's usually not doing as much for you and even the higher salary options are somewhat more viable at 50,270 salary employment allowance can wipe out the employer NI depending on the other employees salaries but personally you're paying 7,540 in income tax and 3,16 employee NI. And on top of that, if you top up to 100,000 with dividends, those dividends are mostly sitting in the higher rate band. So the dividend tax is much heavier. What that means in practice is you've removed the employer NI problem but replaced it with higher personal tax instead. And at 100,000 salary, employment allowance still helps, but it doesn't fully cover it.

[00:11:29]Employer NI before the allowance is 14,250 less the 10 and a half thousand allowance. So there's still going to be 3750 left for you to pay plus income tax employee NI. So again it's not as efficient necessarily as it first looks.

[00:11:50]Employment allowance doesn't suddenly make higher salaries the answer. What it does do is make 12,570 the most straightforward consistent option. So what does all of this actually mean for you? If you're a sole director with no employees, your real choice is usually between 6,78 and 12,570.

[00:12:17]6,78 is a lean option. It protects your state pension year, keeps employer NI very low, and avoids unnecessary payroll tax. 12,570 is the fuller tax planning option. It creates a bigger corporation tax deduction, uses the full person allowance, and may be better if your company is making enough profit for the corporation tax saving to matter.

[00:12:43]Alternatively, if you've got employees and you qualify for employment allowance, 12570 is much stronger because the employer NI can be wiped out. But the biggest lesson for 2026 is this. Don't look at salary in isolation because the real change this year is dividends. They're more expensive now, which means your whole extraction strategy needs to be a lot more joined up. salary, dividends, pensions, spouse involvement, timing, and staying within the rules all need to work together. Get that combination right, and you can still take money out of your company in a very taxefficient way. Get it wrong and you'll usually pay more than you need to without realizing it. But that's it for this one. See you next time. And if you found this video useful, I've put some more videos here for you that you should go check out