The Director’s Tax-Saving Guide: Benefits and Expenses You Can Claim Through Your Company
The benefits and expenses you can legitimately claim through your limited company, and how a solo director on £80,000 of profit can keep around £14,000 more a year. Salary and dividend mix, employer pension, the 4% electric company car, tax-free benefits and the £1m equipment allowance, all checked against current GOV.UK guidance for 2026/27.
Get money out efficiently
A director can take a small salary of around the £12,570 personal allowance, top up with dividends from post-tax profit, and have the company pay into a pension. The first £500 of dividends is tax free, with rates of 10.75%, 35.75% and 39.35% above that, well below the equivalent salary plus National Insurance. Extracting £42,570 as £12,570 salary plus £30,000 dividends instead of all salary saves around £5,229 in personal tax.
- Salary around £12,570: no income tax, no employee NI, deductible for Corporation Tax
- Dividends: £500 allowance, then 10.75% / 35.75% / 39.35%, paid only from available profit
- Employer pension: deductible, no NI, not your income now, up to the £60,000 annual allowance plus three years carry forward
A dividend can only be paid from available post-tax profit. Pay one when the profit is not there and HMRC can recharacterise it as salary or a director’s loan.
What would you actually take home?
Profit available before the director's salary and Corporation Tax — drag to your figure.
- Director salary (PA)£12,570
- Employer's NIC−£1,136
- Corporation Tax−£19,118
- Dividends drawn£67,176
- Dividend tax−£14,412
Effective tax rate 35% after Corporation Tax, on the optimal low-salary-plus-dividend mix. A pension contribution typically lowers this further.
Sole trader keeps the most at £100,000 profit
At this level a sole trader keeps roughly £3,977 more — the limited-company advantage widens as profits rise and when you don't draw everything.
- Salary to the £12,570 personal allowance, the rest as dividends — no NIC on dividends.
- An employer pension contribution would push the 35% effective rate lower still.
- Dividends need retained profit and proper paperwork to be lawful.
- Gross profit£100,000
- Income tax−£27,432
- Class 4 NIC−£3,257
- Net to you£69,311
- Director salary (PA)£12,570
- Employer's NIC−£1,136
- Corporation Tax−£19,118
- Dividends drawn£67,176
- Dividend tax−£14,412
- Net to you£65,334
- Assignment rate£100,000
- Employer's NIC + margin−£14,530
- Income tax−£21,620
- Class 1 NIC−£3,720
- Net to you£60,130
Illustrative estimate for a standalone company, England/Wales/NI, drawing all profit, with no other income or pension. Your position may differ.
Tax-free benefits
Several benefits cut Corporation Tax and create no personal tax. Trivial benefits let a director of a close company take up to £300 a year in separate gifts of £50 or less. The annual event exemption covers up to £150 per head, but it is a threshold: go a penny over and the whole cost is taxable. One mobile phone on a contract in the company name is tax free even with personal use.
- Trivial benefits: £50 or less per gift, £300 a year director cap
- Annual event: up to £150 per head, a threshold not an allowance
- Company mobile, screen-use eye tests and glasses, and relevant subscriptions
Reimbursing your own personal mobile contract does not qualify; the contract must be in the company name.
Company cars and equipment
A fully electric company car is taxed on just 4% of its list price for 2026/27, so a £40,000 EV gives a £1,600 benefit and around £640 of tax a year for a higher-rate director, against roughly £4,800 for an equivalent petrol car. The 4% rate applies only to zero-emission cars. Equipment such as laptops bought mainly for business creates no benefit in kind, and the company claims the cost through the Annual Investment Allowance at 100% on up to £1,000,000.
- Electric car: 4% of list price for 2026/27 (3% in 2025/26, rising to 5% in 2027/28)
- Petrol and diesel cars are taxed on a far higher share of list price
- Equipment via the £1m Annual Investment Allowance; cars get writing-down allowances instead
For many directors a personal car claimed at mileage rates beats any company car, so compare both.
Working from home and motoring
The company can pay a director £6 a week (about £26 a month) towards home-working costs with no records, or rent a home office under a formal licence agreement for more relief. Business miles in your own car are reimbursed tax free at 55p for the first 10,000 miles then 25p, with 24p for motorcycles and 20p for bicycles. The car rate rose from 45p to 55p from 6 April 2026.
- Home office: £6 a week with no records, or a formal rent agreement
- Mileage: 55p then 25p for cars, 24p motorcycles, 20p bicycles, all tax free
- Keep a mileage log; home to a regular workplace is commuting and does not count
Avoid illegal dividends, mixing personal and company money, missing records, and client entertaining, which is never deductible.
It all adds up
Priya, a solo director on £80,000 of profit who works from home, moved to a salary and dividend mix, a £20,000 employer pension, an electric car, business mileage at 55p and the full set of tax-free benefits. Conservatively that is around £14,000 less tax a year for the same income in her pocket, all of it HMRC-approved.
Same income, same kind of car, around £14,000 less tax a year, simply by using the structure a good accountant would put in place.
Common questions
What is the most tax-efficient way for a director to pay themselves in 2026/27?
Usually a small salary of around the £12,570 personal allowance, topped up with dividends, and letting the company pay into your pension. The salary is deductible and free of income tax and employee NI, dividends are taxed well below salary (10.75% basic, 35.75% higher, 39.35% additional after the £500 allowance), and employer pension contributions are deductible with no NI and no personal tax now.
How much tax do you pay on an electric company car?
For 2026/27 a fully electric company car is taxed on just 4% of its list price. A £40,000 EV gives a £1,600 taxable benefit, so about £640 a year for a higher-rate director. The rate was 3% in 2025/26 and rises to 5% in 2027/28, and it applies only to cars with zero tailpipe emissions.
Can my company pay for my mobile phone tax free?
Yes. One mobile phone per person is a tax-free benefit if the contract is in the company name and the company pays the provider, even if you also use it personally. Reimbursing your own existing personal contract does not qualify.
What are the trivial benefit and staff event limits for a director?
A director of a close company can take up to £300 a year in trivial benefits, made up of separate non-cash gifts of £50 or less each. The annual event exemption covers up to £150 per head per year, but it is a threshold: spend more than £150 a head and the entire cost becomes taxable, not just the excess.
What mileage rate can I claim for business journeys in my own car?
HMRC’s approved rates are 55p a mile for the first 10,000 business miles then 25p, with 24p for motorcycles and 20p for bicycles. The company reimburses you tax free and gets a deduction, with no benefit in kind. The car rate rose from 45p to 55p from 6 April 2026.
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For guidance only — this factsheet does not constitute professional advice and is not a substitute for advice based on your specific circumstances. Whilst every care has been taken in its preparation, it may contain errors for which we cannot be responsible. Figures are for the 2026/27UK tax year (England, Wales & Northern Ireland) and may change. Last reviewed 1 March 2026.