Salary vs Dividends in 2025: What’s the Most Tax-Efficient Way to Pay Yourself?

If you're the director of a limited company, deciding how to pay yourself is a key financial decision. Get it wrong, and you could pay far more tax than necessary.

In 2025, changes to dividend allowances and National Insurance thresholds mean it’s more important than ever to review your remuneration strategy.

The Basics: Salary vs Dividends

• Salary is treated as employment income. It's subject to PAYE tax and both employer and employee National Insurance. However, it counts as an allowable business expense, reducing your Corporation Tax bill.
• Dividends are paid from profits after Corporation Tax. They're not subject to National Insurance but do attract Dividend Tax, which has changed again for the 2025/26 tax year.

2025 Updates to Consider

• The tax-free dividend allowance is now just £500 per year (down from £1,000 in 2024 and £2,000 before that).
• National Insurance thresholds have shifted again, impacting how much salary is tax-efficient.
• Corporation Tax remains at 19% for profits up to £50,000, but climbs to 25% for larger earnings.

What We Recommend in 2025

Most directors opt for a blended approach—a modest salary (around the NI threshold) and dividends from retained profits.

But the exact split depends on:

• Whether you're the sole director or employ others
• How much profit the business makes
• Whether you're paying into a pension
• Any student loan or child benefit implications

How Acconomy Helps

At Acconomy, we don’t just do the maths—we help you plan around your lifestyle, tax position, and business goals.

We’ll:

• Calculate your optimal salary/dividend split
• Factor in allowances, thresholds, and reliefs
• Help you stay compliant with HMRC
• Build a long-term tax strategy that evolves with your business

Book a Conversation with Our Practice Owner, Nigel Simmons FCCA

Get personalised advice on how to pay yourself in the most tax-efficient way. Book a one-to-one conversation with our Practice Owner, Nigel Simmons FCCA, and start saving today.

‍