"Total extraction" means the combined amount of salary plus dividends distributed to the director. Company profit figures are pre-director-remuneration and pre-CT.
Note on CT rate: If your company pays 25% CT (profits above £250k before director costs), the numbers differ — higher CT means a larger deduction for salary, making the salary element slightly more efficient. The overall structure (low salary + dividends) remains optimal. Use an accountant for your specific position.
HICBC consideration at £80,000+: If you claim child benefit, the High Income Child Benefit Charge is fully clawed back at £80,000 adjusted net income. For a director with children, extracting £80,000 means zero child benefit retained. Employer pension contributions can reduce adjusted net income below £60,000, eliminating the HICBC entirely.
Personal allowance taper at £100,000: If total income reaches £100,000, the personal allowance begins tapering — losing £1 of PA for every £2 over £100,000. At £125,140 the PA is fully withdrawn, creating a 60% effective marginal rate on income between £100,000 and £125,140. Pension contributions are an effective tool to keep adjusted net income below £100,000 and preserve the full personal allowance.
Summary comparison across extraction levels
Total extraction
Director net
Total taxes
Effective rate
£40,000
£37,644
£9,311
19.8%
£60,000
£53,586
£18,061
25.2%
£80,000
£66,836
£29,502
30.6%
£100,000
£80,086
£40,943
33.8%
These rates compare favourably to PAYE employment at equivalent gross income levels. A PAYE employee would need roughly:
Director net
Equivalent PAYE gross needed
PAYE effective rate
£37,644
~£47,000
~20%
£53,586
~£73,000
~27%
£66,836
~£97,000
~31%
£80,086
~£122,000
~34%
Consider pension contributions: For directors extracting £80k–£100k+, employer pension contributions are often more efficient than additional dividends at the higher rate. A £10,000 employer pension contribution in a 19% CT company costs the company £8,100 net, goes entirely into the pension tax-free, and reduces income subject to higher-rate dividend tax. At £100k extraction, this also protects the personal allowance from tapering.
Frequently asked questions
The standard recommendation for 2026/27: salary of £12,570 (zero income tax, zero employee NI, £520.50 employer NI which is CT-deductible), then take the balance as dividends. The first £500 in dividends is tax-free. Dividends within the basic rate band (total income ≤ £50,270) are taxed at 8.75%; above that at 33.75%. Above £100,000 total income, pension contributions become critical to preserve the personal allowance.
A director can receive £13,070 completely tax-free: £12,570 salary (within personal allowance, no employee NI) plus £500 in dividends (within the dividend allowance). Employer NI of £520.50 is a company cost on the salary, but the director receives the full £12,570. Beyond £13,070, dividend tax at 8.75% applies on additional dividends within the basic rate band.
Employer pension contributions become especially attractive when: (1) income is in the higher rate dividend band (33.75%) — pension contributions are more efficient; (2) total income approaches £100,000 — contributions keep you below the personal allowance taper; (3) child benefit is claimed — contributions reduce adjusted net income below the £60,000 HICBC taper. A £10,000 employer pension contribution in a 19% CT company costs the company only £8,100 net.
Yes — at 25% CT (profits above £250,000), the CT saving on both salary and the pre-dividend profits is larger. This makes salary slightly more attractive relative to dividends (because the CT deduction is bigger), and also reduces the net company cost of all extraction. The optimal salary level remains £12,570 or above. At 25% CT, a £10,000 employer pension contribution saves the company £2,500 in CT (vs £1,900 at 19%).