As a company owner, you’ve worked hard to build your business — but how you take profits out of the company can make a big difference to your personal tax bill. With tax rates changing in 2025, now is the perfect time to review your strategy.
In this guide, we’ll walk you through the most tax-efficient ways to pay yourself this year — so you can keep more of what you’ve earned.
Why It Matters in 2025–26
There have been several key changes this year:
- Dividend allowance has been cut again — now just £500 in 2025–26.
- Corporation tax is now up to 25% for many companies.
- CGT rates on business exits are rising.
- Pension contribution limits are now more generous.
That means the old “dividends-only” approach may no longer be the best option. A balanced, well-planned approach will save you tax.
The Three Main Ways to Pay Yourself
1 . Salary
A salary is a deductible expense for the company (reduces corporation tax), but you will pay income tax and NICs on it.
Pros:
✔ Builds qualifying years for the State Pension
✔ Helps with mortgage applications
Cons:
✘ Subject to NICs
✘ Higher personal tax once thresholds are exceeded
Typical tip: Pay yourself up to £12,570 (personal allowance ) often via PAYE.
2 Dividends
Dividends come from post-tax profits and are taxed separately from salary.
2025–26 dividend tax rates:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
- First £500 tax-free (was £1,000 last year!)
Pros:
✔ Lower rates (compared to salary)
✔ No NICs
Cons:
✘ Cannot deduct from company profits
✘ Reductions in tax-free allowance
3 Pension Contributions
Your company can pay into your pension — this is still one of the most tax-efficient options available.
Pros:
✔ Fully deductible — reduces corporation tax
✔ No personal tax or NICs
✔ Grows tax-free within the pension wrapper
✔ Lifetime allowance now removed — higher limits
Cons:
✘ Money is locked in until the minimum pension age (currently 55, soon rising to 57)
Example: What Could You Save?
Imagine your company makes £100,000 profit:
A balanced approach often works best:
→ £12,570 salary + dividends + company pension contributions
= minimal tax + future savings + income now.
Key Takeaways for 2025–26
- Use your personal allowance
- Balance salary vs dividends to manage thresholds
- Pension contributions are more valuable than ever
- Plan ahead — do not leave it until year-end!
Final Thoughts
Your personal circumstances and goals make a huge difference — what works for one business owner might not suit another. That’s why Smart Business Tax helps you tailor your plan, so you can extract profits as tax-efficiently as possible.
Want to find your best mix for 2025–26?
Get in touch with Smart Business Tax today — and keep more of what you earn.
