Paying yourself this year without surprises Deciding how to pay yourself from your business sounds simple until you start weighing up salary, dividends and pensions, and how each one affects not just your take-home pay, but your tax, national insurance, household benefits and long-term savings. The “best” answer isn’t the same for everyone. It shifts depending on profits, cashflow and what’s going on at home, for example, whether you’re claiming child benefit, repaying a student loan, or getting close to the higher tax thresholds. This guide walks through the main options for the 2025/26 tax year , explains the key thresholds most people bump up against, and flags the points it’s usually worth checking before you act. The 2025/26 numbers that drive most decisions Income tax bands (England, Wales, Northern Ireland) Personal allowance: £12,570 Basic rate: 20% up to £50,270 Higher rate: 40% £50,271–£125,140 Additional rate: 45% over £125,140 Remember: the personal allowance reduces by £1 for every £2 of income over £100,000. If you pay Scottish income tax (on non-savings, non-dividend income), the bands and rates differ — and HMRC publishes those separately. National Insurance (NI) NI often makes salary decisions more sensitive than people expect. Employees (Class 1 primary — category A) 0% up to the primary threshold 8% on main earnings 2% above the upper earnings limit Employers (Class 1 secondary — category A) 15% once earnings exceed the secondary threshold Key thresholds for 2025/26: Primary threshold: £12,570 (employee NI begins) Secondary threshold: £5,000 (employer NI begins) Lower earnings limit: £6,500 (protects benefit entitlement even when no NI is due) Dividends, allowance and tax rates Dividends don’t attract NI, but they have their own tax rules. For 2025/26: Dividend allowance: £500 (0% tax but doesn’t extend your basic rate band) Dividend tax rates: 8.75% (basic rate band) 33.75% (higher rate band) 39.35% (additional rate band) Here’s one useful reminder from HMRC: over 90% of UK taxpayers do not receive taxable dividend income. That’s one reason people get caught out on dividend reporting when they start investing or running a company. Corporation tax reminders (because dividends come from post-tax profits) If you run a limited company, dividends are paid from profits after corporation tax. For 2025/26: 19% small profits rate (profits under £50,000) 25% main rate (profits over £250,000) Marginal relief between £50,000 and £250,000 This matters because the common statement “dividends are lower taxed than salary” isn’t universally true once you consider corporation tax too. What salary gives you — and what it costs Salary still has a role even when dividends are available: It uses your personal allowance predictably. It creates “earned income”, which can matter for certain reliefs and pension contribution limits. It helps build entitlement for some state benefits, depending on levels and NI credits. It is a deductible business cost for corporation tax, provided it’s paid wholly and exclusively for the trade. But here’s a frequent surprise for clients: employer NI now starts at £5,000 per year at 15% , which means a salary set near the personal allowance isn’t automatically “cheap”. Unless you have employment allowance available to offset that employer cost, it can erode the benefit. Employment allowance can reduce an eligible employer’s Class 1 NI bill by up to £10,500 — but there are rules. For example: A company with only one director cannot have that person as the only employee paying secondary NI if it wants to claim the allowance. Connected companies can only claim once across the group. For many single-director companies, employer NI becomes a significant factor in salary decisions. Dividends — how they work and practical limits Dividends are often tax-efficient, but only when the company has distributable profits. Important points include: A company can only pay dividends from distributable profits (after accumulated losses are accounted for). Dividends are not deductible for corporation tax — salary is. So dividend planning always needs a corporation tax view, not just a personal tax one. In 2025/26, the dividend allowance is only £500 , and dividends feed into your adjusted net income for other calculations (e.g., child benefit). Pensions — often the most tax-efficient “pay yourself later” option For many owner-managers, pension contributions are not an alternative to salary or dividends — they sit alongside them. Pension contributions can: Reduce personal income tax (subject to limits and relief method). Reduce corporation tax when made as employer contributions. Avoid NI when structured properly — often a key advantage versus paying extra salary. The annual allowance for 2025/26 is £60,000 , but high earners face tapering: Threshold income limit: £200,000 Adjusted income limit: £260,000 Minimum tapered allowance: £10,000 If you’ve already flexibly accessed pension benefits, the money purchase annual allowance (MPAA) is £10,000 for this year. Personal pension relief depends on “relevant earnings”, which dividends usually don’t count towards — another reason employer contributions can be useful. If you earn less than £3,600 a year, you can still get tax relief on contributions up to £2,880 net (grossed up to £3,600). Government figures for 2024 show around 89% of eligible employees saved into a workplace pension — and for business owners, pensions remain one of the most tax-advantaged ways to build long-term wealth. Common approaches by business type Limited company owner-managers Most extraction strategies blend all three routes: A base salary (often set with NI and benefit entitlements in mind). Dividends as flexible top-ups (assuming reserves allow). Employer pension contributions where cashflow supports longer-term saving. What changes the “right” answer is often: Whether the company can claim employment allowance. Whether your total income is near a key threshold like £50,270, £100,000 or £125,140. For example: if a director takes a £12,570 salary in 2025/26, employee NI is generally nil at that level, but employer NI above £5,000 may apply at 15% unless reliefs are available. Modelling these effects gives a much clearer picture than relying on general rules of thumb. Sole traders and partnerships If you don’t have dividends, you draw profits directly. In practice, “pay yourself” planning then focuses on: understanding profit levels early enough to avoid surprises in your payments on account using pension contributions to reduce taxable income where appropriate watching the same thresholds (higher-rate entry, personal allowance taper, child benefit charge) If incorporation is on the table, it’s worth doing a full comparison — the decision includes legal responsibilities, profit volatility and admin costs, not just tax. Household issues that affect the “best” answer Child benefit and adjusted net income The high income child benefit charge (HICBC) applies once adjusted net income exceeds £60,000, with full withdrawal by £80,000. Dividends count here, so dividend planning can directly impact whether you keep child benefit. Student loan repayments If you’re self-employed or complete Self Assessment, student loan repayments are based on your total income for the year. For directors taking dividends, payroll deductions alone may not be the whole story — especially if Self Assessment includes other income sources. Government data shows this matters most for Plan 1 and Plan 2 thresholds (e.g., Plan 1 is around £26,065), so it’s worth checking how your mix of salary and dividends affects any repayment position. What’s been announced after 5 April 2026 This guide uses 2025/26 figures, but if you’re planning pay patterns around the tax year end, it’s worth noting that HMRC has published proposals to increase dividend tax rates from 6 April 2026 . If you expect to pay dividends near year end, consider scheduling a short review before 5 April 2026 to check timing, available reserves and the most current rules. Practical checklist for the rest of 2025/26 If you want to take action before 5 April 2026 , these steps usually provide the most value: Forecast total personal income — salary, dividends, interest, rent, benefits etc. Identify thresholds you’re near: £50,270, £60,000, £100,000, £125,140 . Confirm whether your company can claim employment allowance. Check distributable reserves before declaring dividends and document decisions properly. Review pension contribution scope — including annual allowance and taper risk. If child benefit applies, model adjusted net income. If you have a student loan, include that in forecasts. Compare planned versus actual numbers. Before the year end, stepping back and comparing your actuals against your plan — especially if profits have shifted, dividends have been irregular, or household income has changed — is often one of the most valuable actions you can take. Bringing it together Paying yourself isn’t just about minimising tax. It’s about matching your personal needs, household circumstances and business cashflow. The right blend of salary, dividends and pension contributions can improve take-home pay, protect liabilities and build long-term security — but only when it’s based on your actual numbers and priorities. If you’d like a sense check or tailored comparison using your year-to-date figures and expected draws before 5 April 2026 , we can model a few scenarios and set out sensible next steps.  That’s exactly the kind of work I do every day — and it’s usually far more useful than generic rules of thumb.

Business confidence slips as costs rise The latest British Chambers of Commerce Quarterly Economic Survey suggests business confidence has weakened again. Less than half of responding businesses — 46% — expect their turnover to increase over the next 12 months. That’s the lowest level recorded in three years and a reminder that, for many firms, recovery still feels fragile rather than secure. The survey gathered responses from more than 4,600 businesses , mainly SMEs, between mid-November and early December, spanning the period before and after the Autumn Budget. Costs are still driving decisions Cost pressures remain a major factor. 52% of businesses plan to increase prices in the next three months (up from 44% in the previous quarter). 27% report cutting back investment plans , while only 19% have increased investment . In hospitality, retail and manufacturing, more than a third of firms are reducing planned spending. Those figures tell a fairly clear story. Businesses are protecting margins first, investing second. Tax and inflation remain front of mind Taxation continues to be the leading concern, cited by 63% of respondents - up on the previous quarter and matching levels seen after last year’s Budget. Concerns were particularly high ahead of the Chancellor’s statement and eased slightly afterwards. Inflation remains a significant worry for more than half of firms, and despite recent interest rate cuts, many businesses report little sign of renewed momentum. With forecasts suggesting rising unemployment and further cost pressures ahead, caution seems to be the prevailing mood. What this means in practice None of this means businesses should stop planning. If anything, it makes planning more important. In uncertain conditions, the fundamentals matter: clear cashflow forecasts realistic pricing decisions disciplined cost control and sensible investment timing Confidence doesn’t usually return because a headline changes. It tends to improve when business owners feel they understand their numbers and have options. If the wider economic picture feels unsettled, focus on what you can control. Clear information reduces uncertainty, and uncertainty is often what drives stress. If you’d like to talk through what the current climate means for your business specifically, that’s exactly the kind of conversation I have every day.