Salary vs Dividends for a Medical or Consultant Limited Company (2026/27)

For 2026/27 the usual answer is a directors salary of £5,000, then dividends on top, then employer pension contributions once your dividends reach the 35.75% upper rate. The dividend rates rose two points on 6 April 2026, so a split you set last year now costs you more than you planned. Whether to incorporate at all is a different question, answered in the guide to GP limited company tax benefits and drawbacks.

Salary vs dividends: which is better in 2026/27?

Neither route wins on its own, and the useful answer is a combination. A salary is deductible against your company's profit before corporation tax, but every pound above the £5,000 secondary threshold costs the company 15% employer NIC. A dividend carries no NIC at all, but it is paid out of profit that has already borne corporation tax at 19% or more, and since 6 April 2026 it is taxed in your hands at 10.75%, 35.75% or 39.35%.

The dividend vs salary question has one answer for a contractor whose company is their only income and a different one for you. Your NHS employment income sits underneath the company and fills the basic-rate band before a single company dividend is declared, so the first pound your company distributes is taxed at 35.75%, not 10.75%. That single structural fact changes which lever raises your take-home, and it is why the generic contractor answer is the wrong one to copy.

What are the 2026/27 dividend tax rates and thresholds?

Dividend tax (2026/27, from 6 April 2026, FA 2026 s.4 amending ITA 2007 s.8): 10.75% ordinary rate, 35.75% upper rate, 39.35% additional rate, with a £500 annual dividend allowance at 0%. The ordinary and upper rates rose two points from the 8.75% and 33.75% that applied in 2025/26; the additional rate was unchanged.

Employer NIC: 15% on your salary above the £5,000 secondary threshold, paid by the company, from 6 April 2025 and unchanged for 2026/27. Nothing is due if your salary is held at or below £5,000.

Employee NIC and income tax on salary: nil below the primary threshold of £12,570, then 8% to £50,270 and 2% above. Income tax runs at 20% to £50,270, 40% to £125,140 and 45% above that.

Corporation tax for the financial year beginning 1 April 2026 is 19% on profits up to £50,000 and 25% on profits over £250,000, with marginal relief tapering between them; the full rate map, the marginal-relief fraction and the associated-companies rules sit in the guide to corporation tax for medical companies.

Salary vs dividends on £60,000 of company profit

Take a single director with no other personal income, no Employment Allowance and £60,000 of private trading profit. The two routes compare like this. Figures are illustrative only.

Extraction routes compared at 2026/27 rates: £60,000 of company profit, single director, no other income, no Employment Allowance

Item	Low salary (£5,000) plus dividends	Salary only
Directors salary	£5,000	£52,826
Employer NIC (15% above £5,000)	£0	£7,174
Company taxable profit after salary and NIC	£55,000	£0
Corporation tax	£10,825	£0
Post-tax profit available as dividends	£44,175	£0
Your gross income (salary plus dividends)	£49,175	£52,826
Employee NIC	£0	£3,067
Income tax and dividend tax	£3,881	£8,562
Your take-home	£45,294	£41,197
Total taxes and NIC	£14,706	£18,803
Effective rate on £60,000	24.5%	31.3%

How the figures are built. The salary-only column sets the salary at the level that exhausts £60,000 once employer NIC is added: £52,826 plus £7,174 of NIC at 15% on the excess over £5,000. Corporation tax on £55,000 uses marginal relief, 25% of £55,000 less the standard fraction of 3/200 applied to (£250,000 minus £55,000), giving £10,825. The dividend tax is £500 at 0%, £7,570 covered by the unused personal allowance, and the remaining £36,105 at the 10.75% ordinary rate, because this director has no other income. Assumes no associated companies. Add NHS employment income and every one of those dividends is taxed at 35.75% instead, which is worth roughly three times as much tax on the same post-corporation-tax profit.

What does a pound of company profit really cost?

The number that decides your extraction plan is not either tax rate on its own but the two of them stacked. Corporation tax is charged on the profit, then dividend tax is charged on what is left. The combined effective rate on a pound of company profit taken as a dividend, at 2026/27 rates, is this.

Combined effective rate on company profit extracted as a dividend, 2026/27, by corporation tax band

Your dividend rate	Company at 19% (profits to £50,000)	Company at 26.5% (marginal-relief band)
Ordinary, 10.75%	27.7%	34.4%
Upper, 35.75%	48.0%	52.8%
Additional, 39.35%	50.9%	55.4%

Read the upper-rate row first, because that is where a consultant with NHS income sits. Just over half of every pound your company earns in the marginal-relief band disappears before it reaches you. That is the figure against which the pension route is judged below, and it assumes the £500 dividend allowance has already been used.

What is the most tax-efficient directors salary in 2026/27?

Where you are the only employee, the salary decision is a choice between three reference points.

• £0: no employer NIC, no employee NIC, no income tax, but no corporation tax deduction and no qualifying year toward your state pension from that company.
• £5,000, at the secondary threshold: no employer NIC, no employee NIC and no income tax, because £5,000 is below the £12,570 personal allowance. The corporation tax deduction is worth 19% of £5,000, which is £950.
• £12,570, at the primary threshold and equal to the personal allowance: employer NIC of 15% on the £7,570 above the threshold, which is £1,136 in cash. Still no employee NIC and no income tax on the salary, and the corporation tax deduction rises to 19% of the £13,705.50 of salary and employer NIC together, which is £2,604.

With no other personal income, the £12,570 salary comes out around £463 a year ahead at the 19% corporation tax rate, because the extra £7,570 of salary and the £1,136 of employer NIC together strip £8,706 out of taxable profit. That margin is thin enough that many one-person companies stay at £5,000 and take the simpler payroll.

If you have NHS employment income, the calculation reverses and £5,000 is clearly right. Your personal allowance is already used by the NHS salary, so the extra £7,570 of company salary would be taxed at 40% and carry employee NIC on top, while the company still pays the £1,136. Where the Employment Allowance is genuinely available the higher salary wins comfortably, and the next section is about why it usually is not.

The Employment Allowance single-director trap

The Employment Allowance is £10,500 for 2026/27 and would wipe out the employer NIC on a £12,570 salary several times over. It is not available where the only employee of the company is also its sole director, which describes most one-person medical companies, so the full £1,136 falls on the company with no offset.

A second genuine employee breaks the exclusion. If your spouse or another family member is on the payroll at a market rate for work actually done, the allowance becomes available and covers the employer NIC on both salaries up to the £10,500 cap. HMRC's BIM37700 sets the test: wages paid to a connected person must be wholly and exclusively for the purposes of the trade and commensurate with the work actually performed. A paper salary for work nobody did fails that test and is disallowed.

How do you pay yourself dividends on top?

Once the salary is set, profit that has already borne corporation tax can be distributed as a dividend. Your £500 allowance applies first at 0%, and everything above it is taxed at the rate for the band your total income falls into once the dividend is stacked on top of it.

• Total income below £50,270: 10.75% on dividends above the allowance and any unused personal allowance.
• Total income £50,270 to £125,140: 35.75%.
• Total income above £125,140: 39.35%.

If your NHS employment income is £80,000, you are already in the higher-rate band before the company declares anything, so every company dividend is taxed at 35.75% from the first pound and the £500 allowance is the only part that escapes. Dividends also have to be legally declared out of distributable reserves and minuted, so the company needs distributable profit on hand and not just cash in the account.

Is an employer pension contribution better than a dividend?

Once your dividends are hitting 35.75%, usually yes, and the reason is National Insurance rather than the corporation tax deduction. Salary is deductible too, so the deduction is not the differentiator. An employer contribution to a registered pension scheme is disregarded in the calculation of earnings for Class 1 NIC under ITEPA 2003 s.308, so the company pays no 15% employer NIC on it and you pay no employee NIC on it either. The same money routed through payroll would carry both.

• Deductible for corporation tax, on a paid basis. HMRC's BIM46035 treats an employer pension contribution as allowable unless there is a non-trade purpose for the payment, applying ITTOIA 2005 s.34 and CTA 2009 s.54. The relief runs on a paid basis under FA 2004 s.196, so the money has to leave your company's bank account before the period end to land in that year's accounts.
• No salary multiple to satisfy. The test is purpose, not a percentage of your pay. What HMRC actually challenges is a total remuneration package that is excessive for the value of the work done, which is a different and much narrower objection than the salary-multiple rule of thumb you will hear repeated.
• Capped by your annual allowance. A contribution only helps to the extent your annual allowance permits it, and for a consultant the NHS scheme has usually consumed most of that allowance before the company contributes anything; the allowance, the taper and carry-forward are covered by the NHS pension annual allowance calculator.

Compare the two routes on £10,000 of profit in a company paying the 19% small-profits rate. As a dividend: £10,000 bears £1,900 of corporation tax, leaving £8,100, which at the 35.75% upper rate leaves you about £5,204 in hand. As an employer pension contribution: the whole £10,000 goes into the scheme, the company saves the same £1,900 of corporation tax, and no NIC arises on either side. The cost of that extra £4,796 is access, because the money is locked until the normal minimum pension age of 55, rising to 57 on and after 6 April 2028 under FA 2022 s.10.

Does a low salary damage your NHS pension?

No, and this is the reassurance that makes the £5,000 answer safe. Salary from your private company is not NHS-pensionable, and neither are its dividends. Only your NHS employment income accrues NHS pension. Private work builds no NHS entitlement whether you run it as a sole trader, in a partnership or through a company, and the choice between salary, dividends and employer pension contributions sits entirely outside the NHS scheme. Dropping your company salary from £12,570 to £5,000 costs you nothing in NHS pension terms.

What does interact is the annual allowance, because your NHS pension input amount and any employer contribution from your company are measured against the same allowance and the same taper. Model your NHS input amount first, then decide what room is left for the company contribution.

Splitting dividends with a spouse or family shareholder

A spouse or civil partner holding shares in the company receives dividends in their own right and uses their own personal allowance, basic-rate band and £500 dividend allowance. Where their income is lower than yours, the same distribution is taxed at 10.75% in their hands instead of 35.75% in yours, and the household bill falls accordingly.

Two conditions have to hold. The shareholding must be real, meaning shares carrying genuine economic rights and not a nominee arrangement. And the settlements legislation at ITTOIA 2005 s.619 onward, in particular s.624 on settlor-interested arrangements, can attribute the dividend income back to you where shares were gifted with no genuine element of commercial substance. Where your spouse took real economic risk from the outset the risk is lower; where shares were handed over purely to redirect income from a one-person operation, the rules are more likely to bite. A plan to hold investments in a separate structure is a longer-horizon question, and it belongs with the family investment company for doctors and consultants.

Where does the salary and dividend split go wrong?

• Rolling last year's split forward. The upper rate rose two points to 35.75% on 6 April 2026, so the plan you set in 2025/26 now leaves more tax on the table than it did. Review it with the accounts each year.
• Assuming the Employment Allowance is available. A single-director company cannot claim it, and budgeting a £12,570 salary without the £1,136 of employer NIC is the most common arithmetic gap on a first-year payroll.
• Planning on an old dividend allowance. It fell from £2,000 to £1,000 and then to £500, so a plan built on the older figure overstates your tax-free dividend income by a wide margin.
• Ignoring what NHS income does to the band. The worked example above assumes no other income. With NHS earnings in the higher-rate band, every company dividend is taxed at 35.75% from the first pound.
• Drawing money as a loan instead. A balance outstanding nine months and one day after the period end triggers a s.455 charge at 35.75% on loans made on or after 6 April 2026, and the guide to the director's loan account in a consultant's medical company covers the mechanics and the deferred s.458 relief.
• Leaving the pension lever unused. Above the basic-rate band an employer contribution normally beats a dividend outright, and it belongs in the same annual review as the salary and the distribution.
• Letting cash pile up with no plan. Profit that is never extracted still has to go somewhere, and surplus cash in a medical limited company walks through what an accumulated balance can actually be put to work on.

Reviewing the extraction mix each tax year

The split is not a one-time setting. It moves when dividend rates change, when your NHS income moves you between the 35.75% and 39.35% bands, and when the annual allowance taper opens or closes the pension route. A yearly review covers four things: your salary against the £5,000 secondary threshold and the Employment Allowance position, dividend timing across the rate bands, the employer pension contribution modelled against your NHS pension input amount, and any spouse shareholding. If the company itself is still to be set up, the sequence is in the guide to incorporating a medical practice step by step, alongside the tax comparison in GP limited company tax benefits and drawbacks.

We model the annual extraction mix for consultants running private medical companies. You can read how we support consultants with private-practice planning, or get in touch through the contact page.