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

Once you have a private medical or consultant limited company, the recurring question is how to get money out of it efficiently each year. This page answers that question for 2026/27: the optimal director's salary for a single-director company, what the new 35.75% upper dividend rate means for extraction, why the single-director Employment Allowance trap makes last year's answer stale, and why employer pension contributions are often the sharpest lever for higher earners. The whether-to-incorporate question is a separate one, covered in our guide to GP limited company tax benefits and drawbacks. This guide assumes you already have a company and want to optimise how you take money from it.

The question this page answers

Most guidance on a medical limited company bundles two questions: should you incorporate, and how should you extract if you do? Those are different decisions with different answers. The should-I-incorporate question turns on your private income level, the NHS pension accrual you are giving up, and the running cost of a company. This guide is about the second question only: given that a company already exists and is earning private income, what is the most efficient combination of salary, dividends and employer pension contributions to put money in your pocket at the lowest combined tax and National Insurance cost?

The annual extraction review is not optional. The 2026/27 dividend rate rise from 33.75% to 35.75% at the upper rate (and from 8.75% to 10.75% at the ordinary rate) changed the numbers materially from last year. A salary and dividend split that was calibrated in 2025/26 should be revisited now. For the corporation tax rates that sit underneath this calculation, see our guide to corporation tax for medical companies.

The 2026/27 rate map

The extraction decision sits on four numbers, all of which apply for 2026/27.

Corporation tax on company profits: 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief tapering between the two thresholds (standard fraction 3/200, giving an effective rate of around 26.5% in the band for a company with no associated companies).

Employer NIC: 15% on the director's salary above the £5,000 secondary threshold, paid by the company, from 6 April 2025. No employer NIC arises if salary is held at or below £5,000.

Dividend tax (2026/27, from 6 April 2026, FA 2026 s.4): 10.75% ordinary rate, 35.75% upper rate, 39.35% additional rate, with a £500 annual allowance. These rose from 8.75% and 33.75% in 2025/26; the additional rate stayed at 39.35%.

Employee NIC on salary: nil below the primary threshold of £12,570, 8% between £12,570 and £50,270, 2% above. A director's salary set at or below the primary threshold carries no employee NIC.

Setting the director's salary

For a private medical company where the director is the only employee, the salary decision is usually a choice between three reference points.

• £0 salary: no employer NIC, no employee NIC, no income tax, but no corporation tax deduction for salary and no state-pension entitlement from contributions in that year.
• £5,000 salary (at the secondary threshold): no employer NIC arises, no employee NIC, no income tax (below the personal allowance of £12,570). A modest CT deduction is available at 19% of £5,000 = £950.
• £12,570 salary (at the primary threshold, equal to the personal allowance): employer NIC of 15% on (£12,570 minus £5,000) = £1,136 is triggered. No employee NIC, no income tax on the salary. The CT deduction is larger (19% of £12,570 = £2,388), but the employer NIC is a firm cash outflow.

In practice, single-director medical companies most often set salary at or near the £5,000 threshold in 2026/27, because the employer NIC cost at £12,570 is a real cash liability. Where the Employment Allowance is available, the calculation shifts in favour of the higher salary.

The Employment Allowance single-director trap

The Employment Allowance (£10,500 for 2026/27) can offset employer NIC, which would make a salary of £12,570 or higher attractive with no net NIC cost. The trap is that the Employment Allowance is not available to a company whose only employee is also its sole director. This exclusion covers most one-director medical companies. The full employer NIC cost therefore falls on the company with no offset.

The picture changes if a genuinely employed spouse or other family member is on the payroll at a market-rate salary for real work. A second employee breaks the single-employee exclusion and makes the Employment Allowance available, which then covers the employer NIC on both salaries up to the £10,500 cap. The word "genuinely" matters here: the salary must reflect the actual work done and be commercially defensible, not a paper arrangement. HMRC's guidance at BIM37700 requires that wages paid to a connected person are wholly and exclusively for the purposes of the trade and are commensurate with the work actually performed.

Topping up with dividends

Once the salary is set, surplus company profit that has been subject to corporation tax can be paid out as dividends. The £500 dividend allowance (2026/27) applies first at 0%. Above that, the rate depends on which income tax band the dividend income falls into when added to all other income.

• Within the basic-rate band (total income below £50,270): 10.75% on dividends above the allowance and personal allowance.
• In the higher-rate band (total income £50,270 to £125,140): 35.75%.
• In the additional-rate band (total income above £125,140): 39.35%.

For a consultant who already has NHS employment income of, say, £80,000, any dividend from the private company falls straight into the higher or additional rate band. That changes the extraction arithmetic significantly. Corporation tax of up to 26.5% on the company profit, followed by 35.75% dividend tax on the distribution, means the combined effective rate on private profit extracted as a dividend can approach 55% at higher income levels. That is where employer pension contributions become the more efficient route.

A spouse or family shareholder

A spouse or civil partner who holds shares in the company can receive dividends in their own right, using their own personal allowance, basic-rate band and dividend allowance. Where the spouse's total income is lower, those dividends fall in a lower tax band and the household tax cost is reduced.

Two caveats apply. First, the shareholding must be genuine: the spouse holds real shares with real economic rights, not a nominee or paper arrangement. Second, the settlements legislation (ITTOIA 2005 s.619 onward, in particular s.624 on settlor-interested arrangements) can attribute dividend income back to the founding spouse where the shares represent a settlement with no genuine element of commercial substance. In practice, where a spouse is a genuine shareholder who took on real economic risk from the outset, the settlements risk is lower. Where shares were gifted purely to redirect income from what is effectively a one-person operation, the rules are more likely to be engaged. This area needs proper legal and tax structuring, not a planning assumption.

The all-in comparison: salary only versus low salary plus dividends

The table below compares two extraction routes for a single director with no other personal income and no Employment Allowance, from a company with £60,000 of private trading profit in 2026/27. Figures are illustrative only.

Item	Low salary (£5,000) + dividends	Salary only
Director 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
Director gross income (salary plus dividends)	£49,175	£52,826
Employee NIC	£0	£3,067
Income tax and dividend tax	£3,881	£8,562
Director net income	£45,294	£41,197
Total taxes and NIC	£14,706	£18,803
Effective rate on £60,000	24.5%	31.3%

Notes on the table. Salary-only: salary set at the level that exhausts all £60,000 after employer NIC (£52,826 + £7,174). CT on £55,000 uses the marginal-relief formula (25% × £55,000 minus marginal relief = £10,825). Dividend tax: £500 allowance at 0%, remaining £36,105 at 10.75% (all within the basic-rate band for a director with no other income). Assumes no associated companies. A consultant with existing NHS income will face 35.75% upper dividend rate on every company dividend, substantially changing the comparison.

The NHS pension point that changes the maths

Dividends from a private limited company are not NHS-pensionable. Neither is salary paid by a private company. For a consultant, only the NHS employment income is pensionable; private work, whether sole-trader, partnership or company, does not accrue NHS pension regardless of how it is extracted. This means the choice between salary, dividends and employer pension contributions from the private company sits entirely outside NHS pension accrual for consultants. Taking a lower salary from the private company does not harm NHS pension accrual in any way.

The annual allowance taper is a separate matter. Where adjusted income exceeds £260,000 (and threshold income exceeds £200,000), the £60,000 annual allowance tapers to a floor of £10,000 (2026/27). The NHS pension input amount (the capitalised growth in the defined-benefit scheme, not contributions paid) counts toward that allowance. A consultant whose NHS accrual alone consumes most of the tapered allowance has limited room for employer pension contributions from the private company without triggering a charge. Modelling the taper position is essential before setting the extraction mix for a high-earning consultant.

Employer pension contributions as a third lever

A company can pay employer pension contributions directly from its profits. Those contributions have three advantages over dividends for a higher-rate or additional-rate taxpayer.

• Corporation tax deductible on a paid basis under FA 2004 s.196, provided the contribution is wholly and exclusively for the purposes of the business. At 19% CT on small-profits, every £10,000 of employer pension contribution saves £1,900 of tax.
• No NIC: no employer NIC and no employee NIC arises on an employer pension contribution, unlike salary above the £5,000 secondary threshold.
• Subject to the annual allowance: the combined annual allowance is £60,000 (2026/27), or lower where the taper applies. Carry-forward of unused allowance from the previous three tax years is available, subject to the member having been in a registered pension scheme in those years.

Compare the two routes on a £10,000 figure for a higher-rate taxpayer. Dividend: £10,000 company profit suffers 19% CT leaving £8,100, then 35.75% upper dividend tax, leaving around £5,204 net in hand. Employer pension: £10,000 contributed directly, £1,900 CT saved, £10,000 sitting in the pension with no further tax on the way in. The trade-off is that pension funds are locked until the minimum pension age (55, rising to 57 in 2028), but for consultants building long-term wealth alongside the NHS scheme, the employer contribution route is usually the right answer once dividends fall in the upper rate band.

Common mistakes with the salary and dividend split

• Leaving the split unchanged from last year. The shift to 35.75% upper dividend rate from 6 April 2026 changes the optimum for consultants with NHS income. The split should be reviewed each tax year as part of the company's accounts and tax-planning process.
• Assuming the Employment Allowance is available. Single-director companies cannot claim it. Paying a salary of £12,570 without accounting for the full £1,136 employer NIC is a common and avoidable gap.
• Forgetting the dividend allowance has been reduced. The dividend allowance fell from £2,000 to £1,000 and then to £500. Extraction plans based on an older allowance figure overstate the tax-free dividend income materially.
• Not modelling the impact of NHS income on the dividend rate band. A consultant with NHS earnings placing them in the higher-rate band faces 35.75% on every company dividend, not 10.75%. The worked example above applies to a director with no other income; with substantial NHS income the dividend tax bill is roughly three times higher on the same post-CT profit.
• Using the director's loan account as a substitute for declared extraction. Drawing money informally as a loan avoids the immediate dividend tax, but a balance outstanding nine months and one day after the period end triggers a s.455 charge at 35.75% (on loans made from 6 April 2026). Relief under s.458 is deferred until the loan is repaid. Our guide to the director's loan account in a consultant's medical company covers the mechanics in full.
• Overlooking employer pension contributions. For consultants once income exceeds the basic-rate band, the employer pension contribution is typically more efficient than dividends and belongs in the same annual review as salary and dividends.

How we set up the right extraction mix for medical companies

The salary and dividend split is not a one-time choice. It changes each year as dividend rates move, as NHS income rises or falls, and as the annual allowance taper bites or eases. Getting it right means running the full picture: director's salary relative to the £5,000 threshold and the Employment Allowance position, dividend timing across rate bands, employer pension contributions modelled against the taper, and spouse shareholding where in place.

We work with consultants running private medical companies to model the optimal extraction mix annually. You can read more about how we support consultants with private-practice company extraction planning, or get in touch via our contact page. For the numbers that sit underneath this calculation, see our guide to GP limited company tax benefits and drawbacks and our breakdown of corporation tax for medical companies.