How Limited Company Owners Can Save Tax in 2026/27
One of the advantages of running a limited company is that you often have some control over how and when you take money out of the business.
That creates opportunities for tax planning.
But saving tax is not simply about taking everything as dividends or choosing the lowest salary possible.
Good planning looks at the company and the director together.
Here are some of the main areas limited company owners should consider.
1. Get the salary and dividend mix right
Many company owners take a combination of salary and dividends.
They are taxed differently.
Salary:
is normally deductible when calculating company profits;
is subject to PAYE;
can attract employee National Insurance;
can create employer National Insurance for the company.
Dividends:
are paid from profits after Corporation Tax;
do not reduce the company's Corporation Tax bill;
are not subject to National Insurance;
can only be paid where the company has sufficient profits available for distribution.
For 2026/27, the Personal Allowance remains £12,570.
Dividend income above the £500 Dividend Allowance is taxed at:
10.75% within the basic-rate band;
35.75% within the higher-rate band;
39.35% within the additional-rate band.
This is why a mixture of salary and dividends is commonly used.
But there is no single salary figure that is best for every director.
Your other income, company profits, National Insurance record and Employment Allowance position all matter.
2. Check whether Employment Allowance changes the calculation
For 2026/27, employer National Insurance is generally 15% on earnings above the £5,000 Secondary Threshold.
Eligible employers can reduce their employer National Insurance bill by up to £10,500 through Employment Allowance.
This can make a higher director salary more attractive in some companies.
However, a company with only one director cannot claim Employment Allowance where that director is the only employee liable for employer National Insurance.
So do not assume that the same salary strategy should be used for every limited company.
3. Control when you take income
This is one of the biggest advantages company owners have.
You do not necessarily have to withdraw all of the company's available profits personally each year.
If you do not need the money personally, some profits can remain in the company after Corporation Tax and be extracted later.
This can help avoid unnecessarily pushing personal income into a higher tax band.
For 2026/27, some important personal income levels include:
£50,270 – higher-rate tax starts for taxpayers in England, Wales and Northern Ireland.
£60,000 – the High Income Child Benefit Charge starts to become relevant, where applicable.
£100,000 – the Personal Allowance begins to reduce by £1 for every £2 of income above this level.
£125,140 – the standard Personal Allowance is completely lost and additional-rate tax applies.
Sometimes taking another large dividend just before 5 April can push income across one of these thresholds.
Where the money is not actually needed, delaying some income until a later tax year may produce a better result.
4. Aim for a smoother personal income
Company profits do not always stay the same.
You may have an excellent year followed by a quieter one.
That does not necessarily mean your personal income has to follow the same pattern.
For example, imagine your company has a particularly profitable year but you only need £45,000 personally.
Taking substantially more simply because the cash is available could push part of your income into higher tax rates.
Keeping some cash in the company and taking it in a later year may allow you to make better use of your tax bands over time.
Of course, dividends still require sufficient distributable profits, and leaving money in the company does not remove Corporation Tax. Corporation Tax rates remain 19% for small profits, 25% at the main rate, with Marginal Relief applying between the relevant limits.
The saving comes from managing the timing of your personal extraction, rather than avoiding company tax.
5. Consider company pension contributions
You do not have to take all of your reward as cash.
Your company may make pension contributions for you.
An employer pension contribution can generally reduce company taxable profits where it forms part of a commercially justifiable remuneration package and is incurred for the purposes of the business.
The standard pension Annual Allowance for 2026/27 is £60,000, although a lower allowance can apply for high earners or people who have flexibly accessed pensions.
For directors who do not need all their company profits for day-to-day living, pension contributions can therefore be an important part of tax planning.
6. Look beyond salary and dividends
Salary and dividends are only part of the picture.
Depending on your circumstances, other legitimate ways of taking value from the company may include:
tax-free or tax-efficient benefits;
reimbursement of genuine business expenses;
charging the company commercial rent for qualifying use of personally owned property;
charging interest where you have genuinely lent money to the company;
employer pension contributions;
employing a spouse or family member for genuine work at a commercial salary.
Each has its own conditions and personal tax consequences.
For example, rent received from your company can create personal property income, while interest on money you lend the company is generally personal savings income.
The important point is to consider the overall tax position, rather than looking at one tax in isolation.
Do not spend money just to save tax
Tax planning should still make commercial sense.
Spending £1,000 simply to save £190, £250 or £265 of Corporation Tax does not make you £1,000 better off.
You have still spent the money.
The best planning normally involves costs or investments you genuinely want or need, structured in the most tax-efficient way available.
Review your position before the tax year ends
Good tax planning is much easier before money has been taken from the company.
Before 5 April, consider:
how much salary you have taken;
dividends already declared;
other personal income;
your expected total income;
whether you are approaching an important tax threshold;
whether you actually need more personal cash;
whether a pension contribution would be appropriate;
whether the company has enough distributable profits for further dividends.
Waiting until the accounts are prepared months later can mean many of the planning opportunities have already passed.
Final thoughts
Limited company owners often have more flexibility than ordinary employees over how and when they receive income.
That flexibility can be valuable.
The key is not simply to ask:
“Should I take salary or dividends?”
Instead ask:
How much income do I actually need?
Which tax bands will I fall into?
Should some profits remain in the company?
Can Employment Allowance help?
Should pension contributions or other benefits form part of the plan?
At Busy Bee, we help limited company owners stay compliant, tax efficient and in control of their business finances.
Disclaimer: The content on this page is for general information only and should not be treated as tax, legal or financial advice. Tax planning should always be reviewed against your individual circumstances before action is taken.
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