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Tax Planning for UK Corporation Business Owners

As a UK limited company director, you could save thousands of pounds in tax with the right profit extraction strategy. You can draw profits from your business through a combination of salary and dividends—but finding the optimal balance between the two is key to maximising your take-home income and minimising waste. We’ll show you how to achieve this with practical, real-world examples that demonstrate the savings you could unlock.

Example

Company A has an annual net profit of £50,000 (excluding VAT). There are two scenarios for extracting the entire £50,000 as personal income:

1. The director takes the full £50,000 as salary (PAYE).

2. The director takes a salary of £12,570 (within the personal allowance) and the remaining £37,430 as dividends.

	Scenario 1 Salary £50,000 & No Dividend	Scenario 2 Salary £12,570 & Dividend £37,430
PAYE	£7,486	£0
Employee NIC	£2,993.92	£0
Employer NIC	£6,750	£1,136
Corporation tax	£9,500	£9,500
Tax savings on corporation tax	-£9,500	-£2,604
Dividend tax	£0	£3,231
Total Tax	£17,230	£11,263

* Calculations are based on 2025/2026 tax rates.

When extracting income from a limited company, the director must consider several key factors. The optimal salary-dividend balance can vary depending on the business’s size and type, the number of employees, the overall profits, and the director’s personal financial situation. Whilst it’s important you understand these matters, you can solely focus on revenue-driving activities by leaving them with a professional.

BH1 Accounting can review your current income structure and help ensure your salary and dividend split is as tax-efficient as possible.

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