Remuneration planning 2026: How to maximise your tax-efficient income

Overview – remuneration planning 2026

Salary planning for 2025/26 and 2026/27

Personal allowance and NIC thresholds

The personal allowance at which no income tax is payable is currently £12,570 and is expected to be frozen at this level until April 2031. No employee’s national insurance contributions (NIC) are payable below this threshold but employer’s NIC is due for payments above £5,000. A director wishing to minimise income tax and NIC may want to set their basic salary at £6,710 for 2026/27 (£6,500 for 2025/26) to ensure that they will continue to receive their ‘NI stamp’ for the tax year in order to meet the minimum requirements to qualify for state benefits. Under this scenario employer’s NIC of £257 will be incurred in 2026/27 as a result.

When a higher salary may be beneficial

In some cases, however, the individual may benefit from taking a higher salary, for example where the company may also be able to utilise the employment allowance of £10,500 (but note that this allowance is not available to companies with a sole director/employee). This could increase the benefit of taking a higher salary up to the personal allowance with no employer’s or employee’s NIC liability, as well as a deduction for corporation tax (versus dividends which are not tax deductible). As mentioned, your circumstances need to be carefully considered on an individual basis, but some other examples in which a higher salary or bonus should be considered include where:

• the company is eligible for R&D tax relief and a proportion of the director’s salary costs could potentially be claimed for enhanced relief;
• the individual has already utilised their basic rate band through salary or other non-dividend income;
• the director/their spouse utilises tax-free childcare as they will each need to have a minimum income of £10,575 for 2026/27 and £10,159 for 2025/26 to qualify (with dividends being excluded from income for these purposes); or
• there are other commercial reasons, such as the director is looking to purchase a house in the near future. Not all mortgage lenders may take into account dividends and therefore they may have a wider choice of lenders if receiving a higher salary.

Tax rates on interest received

Utilising the personal savings allowance

For 2025/26 and 2026/27, the personal savings allowance is still available which means that the first £1,000 (basic rate taxpayers) or £500 (higher rate taxpayers) of interest received will be tax free in each year. In addition to this, for individuals who receive only investment income in excess of the personal allowance (£12,570), the first £5,000 of interest will be subject to the starting savings rate of 0%.

Why paying interest can be more efficient than paying dividends

If an individual does not currently receive enough interest from other sources and has loaned money to the company, you may want to consider paying interest at a commercial rate on the loan to fully utilise these allowances. Furthermore, as interest is deductible for corporation tax purposes, interest on a director’s loan account should be paid in preference to dividends, as the net position will be preferential. One point to note is that the company would need to deduct basic rate tax from the interest payments and submit a form CT61 to HMRC.

Dividend planning for 2025/26 and 2026/27

Dividend tax rate increases

The basic and higher dividend rates for 2026/27 are increasing as follows:

With the rates set to increase, consideration should be given to accelerating dividend payments into 2025/26 to take advantage of the current, lower rates. This should, however, be weighed up against cash flow requirements, although could be credited to the director’s loan account, as well as the tapering of personal tax allowances.

What is the dividend allowance?

A tax-free dividend allowance of £500 is available in each tax year with any additional dividends taxed as the top-slice of income, so the tax bands that dividends fall within will be affected by other income. If total income exceeds £100,000 the personal allowance is restricted by £1 for every £2 of income above £100,000. Payment of dividends is a standard way for a company to distribute its profits amongst its shareholders but there are a number of rules which apply to the payment of dividends which need to be considered, including having sufficient reserves within the company.

In addition to the above, and with the standard rate of corporation tax at 25%, in some cases it may now be more tax efficient for directors to be remunerated by full salary and only utilising the dividend allowance rather than taking a small salary, typically where total remuneration is significant (i.e. in excess of £350,000).

Summary

Tailored remuneration planning is essential.

Maximising tax‑efficient remuneration for 2025/26 and 2026/27 requires a careful balancing of several key elements including:

• salary strategy
• interest bearing director loan arrangements
• dividend timing
• utilisation of personal allowances
• corporate tax considerations

Every director’s circumstances differ, so bespoke planning is essential to ensure tax efficiency and compliance. Please get in touch if you would like any further information on the above.

Your tax expert