How Other Income Can Change Your Salary and Dividend Strategy
Many limited company owners use a mixture of salary and dividends to take money from their company.
But there is an important point that is sometimes missed:
The right salary and dividend mix depends on all of your income — not just what you take from your company.
If you also have employment income, rental income, pension income or self-employed profits, the tax position can look very different.
For 2026/27, income is broadly taxed in this order:
Non-savings income – including salary, self-employment profits, pension income and property income.
Savings income – such as bank interest.
Dividend income.
This means dividends generally sit on top of your other income.
So if your other income has already used your Personal Allowance or basic-rate band, dividends from your company may immediately fall into higher tax rates.
For 2026/27, dividend income above the £500 Dividend Allowance is taxed at 10.75%, 35.75% or 39.35%, depending on which tax band it falls into.
Other income below £12,570
The standard Personal Allowance for 2026/27 is £12,570.
If you have no other taxable income, a director salary around this level may fall within your Personal Allowance.
But suppose you already receive £8,000 of pension or rental income.
That £8,000 has already used part of your Personal Allowance.
If your company then pays you a salary of £12,570, some of that salary will now be taxable.
This does not automatically mean the salary should be reduced. Salary can still produce Corporation Tax relief for the company and may be useful for National Insurance purposes.
It simply means the usual salary figure should not be applied without looking at your other income first.
Other income between £12,570 and £50,270
Once your other income has used your Personal Allowance, additional salary from your company will normally be taxable from the first pound.
Your other income will also have started using your basic-rate band.
This matters because dividends are taxed after that income.
For example, suppose you earn £35,000 from another job and also want to take dividends from your company.
Your employment income has already used a significant part of the basic-rate band.
Only part of your dividend may therefore be taxed at the 10.75% dividend rate. The remainder could fall into the 35.75% higher dividend rate.
So looking at the dividend in isolation can give a misleading picture.
Other income above £50,270
For taxpayers in England, Wales and Northern Ireland, the higher-rate threshold for 2026/27 is £50,270 where the standard Personal Allowance is available.
If your income from elsewhere has already reached this level, your basic-rate band may effectively have been used up before you take anything from your own company.
Additional dividends may therefore be taxed at 35.75%, subject to the Dividend Allowance.
Additional salary may also be taxed at higher Income Tax rates and could attract employee and employer National Insurance.
At this point, it becomes especially important to consider whether you actually need to take more money from the company immediately.
Depending on the circumstances, alternatives might include:
leaving some profits in the company;
delaying dividends to another tax year;
making company pension contributions;
or reviewing other legitimate ways of taking value from the business.
Watch the £60,000 threshold
Other income can also push you into tax charges that are not directly connected with salary or dividends.
One example is the High Income Child Benefit Charge.
For 2026/27, the charge starts where adjusted net income exceeds £60,000 and gradually increases until the full amount of Child Benefit is effectively repaid at income above £80,000. Dividends are included when calculating adjusted net income.
A director who is already earning £58,000 elsewhere should therefore think carefully before declaring another large dividend.
The £100,000 trap
Another important threshold is £100,000.
Once adjusted net income exceeds £100,000, the Personal Allowance is withdrawn by £1 for every £2 of additional income.
The standard Personal Allowance is completely lost once income reaches £125,140.
This creates a particularly expensive band of income.
For company owners approaching £100,000, the timing and amount of dividends can therefore make a significant difference.
Pension contributions may also be worth considering because, depending on the type of contribution and circumstances, they can affect adjusted net income.
National Insurance works differently
Income Tax looks at your overall income.
National Insurance does not simply add all income together in the same way.
For 2026/27, employee National Insurance generally starts above the £12,570 Primary Threshold, while employer National Insurance starts above the £5,000 Secondary Threshold.
Having rental income or pension income, for example, does not normally reduce the National Insurance charged on a director salary.
Where you also have another employment, however, the National Insurance position can be more complicated and should be checked separately.
A simple example
Suppose Lucy owns a limited company but also earns £40,000 from another job.
She wants to take another £25,000 from her company.
It would be easy to assume she should simply take a standard director salary and the rest as dividends.
But her £40,000 employment income has already:
used her Personal Allowance;
used much of her basic-rate band;
brought her closer to the £50,270 higher-rate threshold.
So any additional salary or dividend needs to be considered on top of the £40,000 she already earns.
The right answer may therefore be very different from another director whose company is their only source of income.
Do not use the same salary for every director
This is the main takeaway.
A salary of £12,570 may work well for one director and be less suitable for another.
Before deciding how much to take from your company, look at:
salary from other employment;
rental income;
pension income;
self-employed profits;
savings income;
dividends from other companies or investments;
benefits in kind;
Child Benefit;
pension contributions;
and income already taken from your own company.
Only then can you see which tax bands and allowances are still available.
Final thoughts
Salary and dividend planning should never be done in isolation.
Your total personal income determines how money from your company will be taxed.
The key questions are:
How much income do you already have from elsewhere?
How much of your Personal Allowance and basic-rate band is left?
Are you approaching £50,270, £60,000 or £100,000?
Do you actually need to take more money from the company this year?
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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