Salary, dividends, pension, and what comes next.
The right blend changes every tax year as rates, allowances and dividend bands shift. A coordinated profit extraction strategy keeps more of what you earn — without losing benefits, allowances or retirement funding along the way.
The optimum mix changes every single year.
Dividend rates have moved. The dividend allowance has shrunk. Corporation tax has risen for many companies. Employer NICs are climbing. What was the most efficient extraction strategy three years ago almost certainly isn’t today.
A good profit extraction strategy sits at the intersection of the company’s position (profits, surplus cash, corporation tax band) and the director’s personal one (other income, pension headroom, family circumstances, spouse’s tax band). It uses salary, dividends, employer pension contributions, employee benefits and — where appropriate — a working spouse’s allowances.
Done well, it’s reviewed each tax year and adjusted before April rather than discovered in June after the fact.
The cost of last year’s strategy.
Most directors are still drawing the same salary/dividend split they set up four tax years ago.
With a coordinated strategy
- Salary set at the efficient threshold for the year — not last year’s
- Dividends drawn against personal allowance, dividend allowance and band thresholds
- Employer pension contributions used as a corporation-tax deductible expense
- Working spouse’s allowances and bands used where appropriate
- Salary sacrifice considered for NICs efficiency
- Reviewed each March against the new tax year’s rules
Without it
- Salary still pegged to the prior National Insurance threshold
- Dividend allowance reduction missed — tax bill larger than expected
- Pension contributions overlooked, missing corporation tax relief
- Higher-rate dividend tax paid for income that didn’t need to be drawn
- Personal allowance lost above £100k because draw wasn’t modelled
- Spouse’s lower tax band unused while the director paid higher rate
Strategy, not product pushing.
A four-step process that’s the same for every client — though the conclusions never are.
Understand both sides
Company profits, surplus cash, tax position — and your personal income needs, other income, household allowances, pension status.
Model the mix
Salary, dividend, pension, benefits, spouse allowances — modelled across scenarios to find the right blend for this tax year.
Make the changes
Salary level adjusted, dividend schedule planned, pension contribution made, paperwork lodged with the accountant where needed.
Pre-April every year
An annual review in February or March against the new tax year’s rules — before April, not after.
Things people often ask.
Salary vs dividend — what’s the right split?
Most owner-directors take a modest salary up to the NIC threshold (preserving state pension entitlement), then dividends on top. The optimal level of each shifts as rates and allowances change — and the answer also depends on whether you need the income personally or could leave more inside the company.
How does an employer pension contribution help?
Employer contributions are deductible against corporation tax for the company and don’t attract employer NIC. They go straight into your pension without touching personal income at all — making them often the most tax-efficient way to extract value from a profitable company.
What about my spouse?
Where a spouse genuinely contributes to the business, paying a salary or appointing them as a shareholder can use their personal allowance and dividend allowance — legitimately doubling tax-efficient capacity. HMRC’s “settlements” rules apply here, so it has to be genuine.
Should I worry about the £100,000 personal allowance taper?
Yes — between £100,000 and £125,140 of adjusted income, you lose £1 of personal allowance for every £2 of income, creating an effective marginal rate of 60%. Pension contributions can pull you back below the threshold and reclaim that allowance.
What about salary sacrifice into pension?
Salary sacrifice reduces both employee and employer NICs as well as income tax — making it more efficient than a personal contribution from net pay. It works particularly well for higher-earning employees, and for directors where the company is happy to pass the NIC saving on.
Will this work alongside my accountant?
Yes — this is the sort of strategy that needs the accountant in the loop. I coordinate with whoever you’re already working with rather than asking you to switch. Most accountants appreciate a planner who’s thinking about the personal side properly.
Let’s start with a conversation.
An initial review is without obligation. Most reviews uncover material tax savings before the next April — without changing anything dramatic about how you run the business.