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 cuts her tax bill by around £8,800 and takes home £7,700 more, every year, while moving £20,000 a year into her pension and deferring a further £10,300 of tax. Salary and dividend mix, employer pension, the 4% electric company car, tax-free benefits and the £1m equipment allowance, for 2026/27. Every figure checked against GOV.UK, with the working shown. General information only, not advice on your own position. The income tax positions here are for England, Wales and Northern Ireland; Scottish taxpayers face different income tax rates, while dividend rates are UK-wide.
- Corporation Tax
- 19% – 25%
- Dividend tax
- 10.75% · 35.75% · 39.35%
- Dividend allowance
- £500
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. The saving is real, and it is smaller than most guides claim, because a dividend is paid out of profit the company has already paid Corporation Tax on, and that cost is usually left out of the comparison. Here is the same cost to the company, spent two ways.
- 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
Paying yourself £42,570 of salary costs the company £48,205.50, once employer National Insurance of £5,635.50 is added. Here is what happens if the company spends exactly the same £48,205.50 the other way.
| Option A, all salary | Option B, small salary plus dividends | |
|---|---|---|
| Salary | £42,570.00 | £12,570.00 |
| Employer NI, 15% above £5,000 | £5,635.50 | £1,135.50 |
| Cost to the company | £48,205.50 | £48,205.50 |
| Profit left to distribute | £0.00 | £34,500.00 |
| Corporation tax at 19% | £0.00 | £6,555.00 |
| Dividend paid | £0.00 | £27,945.00 |
| Income tax and employee NI | £8,400.00 | £0.00 |
| Dividend tax, £500 free, then 10.75% | £0.00 | £2,950.34 |
| In your pocket | £34,170.00 | £37,564.66 |
| You are better off by | £3,394.66 |
Option A: income tax £30,000 at 20% is £6,000, employee NI £30,000 at 8% is £2,400, so £8,400. Option B: no income tax or employee NI on £12,570, and dividend tax of (£27,945 less £500) at 10.75% is £2,950.34. This is the conservative slice basis: it prices one £48,205.50 of company cost extracted each way, rather than restructuring a whole year of profit. Section 06 models Priya’s whole year rather than one slice: her company is in marginal relief, where the slice basis gives £1,085.32, and the whole-year effect of the same pay change is £3,081.04.
That £3,394.66 assumes the company’s profits are under £50,000, so corporation tax is 19%. Above £50,000 marginal relief pushes the rate on each extra pound to 26.5%, and dividends are paid out of profit that has borne it. Same example, same £48,205.50 of company cost.
| Company’s corporation tax position | You are better off by |
|---|---|
| Profits under £50,000, 19% | £3,394.66 |
| Profits over £250,000, 25% | £1,547.19 |
| Profits between £50,000 and £250,000, 26.5% marginal rate | £1,085.32 |
The saving is real at every level. It is not the £5,000-plus that this comparison is usually quoted at, because that version ignores the corporation tax on the dividend.
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
- Income tax on salary£0
- Corporation Tax−£19,118
- Dividends drawn£67,176
- Dividend tax−£14,537
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 £4,102 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
- Income tax on salary£0
- Corporation Tax−£19,118
- Dividends drawn£67,176
- Dividend tax−£14,537
- Net to you£65,209
- 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.
A 2026/27 change most guides have not caught up with
Dividend rates rose by two percentage points on 6 April 2026, to 10.75% basic and 35.75% higher. Corporation tax did not move. For a higher-rate director in a company with profits above £50,000, salary now generally beats dividends on the margin. Here is what £100 of company profit is worth in your hand.
| Corporation tax rate | Basic rate, salary | Basic rate, dividend | Higher rate, salary | Higher rate, dividend |
|---|---|---|---|---|
| 19%, profits under £50,000 | £62.61 | £72.29 | £50.43 | £52.04 |
| 25%, profits over £250,000 | £62.61 | £66.94 | £50.43 | £48.19 |
| 26.5% marginal, profits £50,000 to £250,000 | £62.61 | £65.60 | £50.43 | £47.22 |
£100 of company profit taken as salary gives £86.96 of gross pay after 15% employer NI. A basic-rate director keeps 72% of that after 20% income tax and 8% employee NI; a higher-rate director keeps 58% after 40% income tax and 2% employee NI. Taken as a dividend, £100 of profit becomes £81.00, £75.00 or £73.50 after corporation tax, and the director keeps 89.25% of it at 10.75% or 64.25% at 35.75%.
At basic rate, dividends still win comfortably at every level. At higher rate, once the company is into marginal relief, an extra £100 of profit is worth £50.43 as salary and £47.22 as a dividend. The right answer stopped being automatic. It is now a calculation, and one worth doing every year.
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 fees to professional bodies on HMRC’s approved List 3
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 at 120 g/km, which sits in the 30% band. Those are the personal tax figures on the benefit alone; the full saving is larger once employer Class 1A and the knock-on dividend tax are counted, as section 06 shows. 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. Cars are excluded from the Annual Investment Allowance, but a car bought new and unused with zero CO2 emissions qualifies for a 100% first-year allowance if it is bought before April 2027, meaning 5 April 2027 for income tax and 31 March 2027 for corporation tax. Every other car gets writing-down allowances instead.
- 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 are excluded, but a new and unused zero-emission car gets a 100% first-year allowance if bought before April 2027
A new and unused fully electric car bought outright by the company qualifies for a 100% first-year allowance, so a £40,000 car comes off taxable profit in full in the year it is bought. A second-hand electric car does not qualify; it goes in the main pool at 14% a year instead. Taking Priya’s company from section 06 as the example.
| With the £20,000 pension contribution | With no pension contribution | |
|---|---|---|
| Profit before the allowance | £44,992.50 | £64,992.50 |
| Corporation tax | £8,548.58 | £13,473.01 |
| Profit after the £40,000 first-year allowance | £4,992.50 | £24,992.50 |
| Corporation tax | £948.58 | £4,748.58 |
| Tax saved, year one | £7,600.00 | £8,724.44 |
| Profit left to pay dividends | £4,043.92 | £20,243.92 |
This is a one-off and it is deliberately kept out of the per-year table in section 06. The £1,500 laptop is the same: relieved in full under the Annual Investment Allowance, worth £285 at 19%, once.
It happens once: the allowance is given in full in year one and there is nothing left to claim afterwards. It costs £40,000 of company cash, so the relief is not a discount on a car you were not going to buy. It swallows the dividend capacity in that year: claiming the full allowance and making the pension contribution in the same year leaves £4,043.92 of distributable profit, so most directors should stagger the two, or accept a loss and carry it back 12 months or forward. And it comes back on sale, as a balancing charge.
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 need to evidence the actual costs, provided there is a genuine homeworking arrangement in place, 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 need to evidence the actual costs, provided a genuine homeworking arrangement is in place, 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
The 55p and 25p rates are for your own car. Take a company car and you cannot claim them for that vehicle; the company can reimburse actual electricity or fuel for business journeys instead. For many directors the personal car at 55p a mile still beats a company car, and the answer depends on your mileage, the list price and your tax rate. If Priya in section 06 had kept her own car and driven 4,000 business miles, she would receive £2,200 tax free (4,000 at 55p) and the company would save £583 of corporation tax at 26.5%, but she would lose the £5,152 electric car row. Compare both, do not assume.
Avoid illegal dividends, mixing personal and company money, missing records, and client entertaining, which is never deductible.
Priya, a solo director on £80,000 of profit
Priya runs her company alone and works from home. She used to pay herself £42,570 of salary, take the rest as dividends and run a £40,000 petrol car through the company. Here is what changed when she used the toolkit in this guide, with the working for every line. The three columns are deliberately kept apart. Tax saved is tax she never pays again. Tax deferred is tax she does not pay this year on money she cannot touch until her normal minimum pension age, and which is taxable when she takes it. Cash and value received tax free is money and benefits reaching her without tax, which is not the same thing as tax saved. We do not add them together, because adding them would flatter the number.
- Company profit of £80,000, before her salary, employer NI, the employer pension contribution, the home-office payment, tax-free benefits and any car capital allowances
- Sole director and sole shareholder of a close company with no other employees, so no Employment Allowance
- An England, Wales and Northern Ireland taxpayer who distributes all post-tax profit as dividends
- Before: £42,570 salary and a £40,000 petrol car at 120 g/km WLTP, taxed on 30%, a £12,000 benefit
- After: £12,570 salary, a £40,000 electric car at 0 g/km taxed on 4%, a £20,000 employer pension contribution, £312 of home-office payments and £750 of other tax-free benefits
| Before | After | |
|---|---|---|
| Salary | £42,570.00 | £12,570.00 |
| Employer Class 1 NI, 15% above £5,000 | £5,635.50 | £1,135.50 |
| Car benefit in kind | £12,000.00 | £1,600.00 |
| Employer Class 1A on the car, 15% | £1,800.00 | £240.00 |
| Employer pension contribution | £0.00 | £20,000.00 |
| Home office and tax-free benefits | £0.00 | £1,062.00 |
| Chargeable profit | £29,994.50 | £44,992.50 |
| Corporation tax at 19%, both are under £50,000 | £5,698.96 | £8,548.58 |
| Dividend paid | £24,295.55 | £36,443.93 |
| Income tax | £9,260.00 | £320.00 |
| Employee NI | £2,400.00 | £0.00 |
| Dividend tax | £8,506.91 | £3,949.95 |
| Total tax, company and personal | £33,301.36 | £14,194.03 |
| Priya’s net cash | £46,698.64 | £44,743.97 |
| Priya’s pension pot | £0 | £20,000 |
Total tax falls by £19,107.33. Only £8,793.38 of that is permanently saved. £10,313.95 of it is deferred, not saved, because it is the tax she does not pay this year on the £20,000 that went into her pension instead of into her hand.
| What she changed | How | Tax saved / yr | Tax deferred / yr | Cash and value received tax free / yr |
|---|---|---|---|---|
| 1. Electric car instead of petrol | Same £40,000 list price. The benefit falls from 30% (£12,000) to 4% (£1,600) | £5,151.86 | ||
| 2. Pay mix | Salary cut from £42,570 to £12,570, the balance taken as dividends | £3,081.04 | ||
| 3. Home office and tax-free benefits | £6 a week home office, trivial benefits, annual event, company mobile | £560.48 | £1,062.00 | |
| 4. Employer pension | £20,000 company contribution instead of the same profit taken as dividends | £10,313.95 | ||
| Total, never added across | £8,793.38 | £10,313.95 | £1,062.00 |
The three columns are different things and are never added together. Tax saved is tax that is never paid. Tax deferred is tax not paid this year on money Priya cannot touch until her normal minimum pension age, 55 now and 57 from 6 April 2028, and which is taxable when she draws it. Cash and value received tax free is value she receives without tax rather than tax saved, and its tax effect is already inside the first column. Rows are cumulative in the order shown and interact through the tax bands; a different order moves individual rows by up to about £300 and does not change the totals. Corporation tax is calculated with marginal relief where profits exceed £50,000: on the £20,000 pension contribution the relief is £4,924.44, an effective 24.62%, because part of it falls in the 26.5% marginal band and part at 19%. Illustrative. Your position depends on your profit, your pay mix and your circumstances. Figures verified against GOV.UK on 21 August 2026.
Row 1, the electric car, £5,151.86. Income tax falls from £9,260.00 to £6,320.00, down £2,940.00. Employer Class 1A at 15% falls from £1,800.00 to £240.00, down £1,560.00. Dividend tax falls from £8,506.91 to £7,558.64, down £948.26, because the smaller benefit frees basic-rate band. Corporation tax rises from £5,698.96 to £5,995.36, up £296.40, because Class 1A is deductible and there is now less of it. Row 2, the pay mix, £3,081.04. Income tax down £6,000.00, employee NI down £2,400.00, employer Class 1 NI down £4,500.00, corporation tax up £7,759.09 because dividends come out of taxed profit and salary does not, dividend tax up £2,059.88. Row 3, home office and tax-free benefits, £560.48 saved and £1,062.00 received tax free. £312 plus £300 plus £150 plus £300 is £1,062 of deductible spend; corporation tax falls £281.43 and dividend tax falls £279.05, and Priya receives the whole £1,062 with no personal tax. Row 4, the employer pension, £10,313.95 deferred. Corporation tax falls from £13,473.01 to £8,548.58, down £4,924.44. Dividend tax falls from £9,339.47 to £3,949.95, down £5,389.51, because she takes £15,075.56 less dividend.
Before the pension contribution Priya’s profit is £64,992.50, between the £50,000 lower limit and the £250,000 upper limit, so marginal relief applies: £64,992.50 at 25% is £16,248.13, less 3/200 of (£250,000 less £64,992.50), which is £2,775.11, giving £13,473.01. After the contribution the profit is £44,992.50, below £50,000, so the small profits rate applies and the tax is £8,548.58. The corporation tax saved is £4,924.44, an effective 24.62% on the £20,000, because part of the contribution is relieved at the marginal rate and part at 19%. Between the two limits every extra £1 of profit adds 25p of tax and removes 1.5p of relief, so the marginal rate is 26.5%, not 19%. Guides that value a company pension contribution at 19% understate it.
The first three changes cut Priya’s total tax bill by £8,793 and put £7,731 more cash in her hand, every year, on top of £1,062 of home-office payments, gifts, a party and a phone that reach her without tax at all. The pension is different. It defers £10,314 of tax, and it costs her £9,686 of cash this year to put £20,000 into a pension she cannot draw until normal minimum pension age. That is a good trade and she should make it. It is not money in her pocket now, and any adviser who tells you otherwise is adding up the wrong columns.
Same car on the drive, £8,793 less tax and £7,731 more cash in her hand, every year. A further £10,314 of tax is deferred rather than saved: that is the price of putting £20,000 a year into her pension instead of taking it as dividends, and she gets it at normal minimum pension age, not now. None of it is aggressive. It is the difference between a default setup and one a good accountant would put in place.
The three columns are never added together. Adding them would count tax that is only deferred, and value received with no tax, as if both were tax permanently saved.
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 at 10.75% basic, 35.75% higher and 39.35% additional after the £500 allowance, and employer pension contributions are deductible with no NI and no personal tax now. One caveat for 2026/27: after the dividend rate rise, a higher-rate director in a company paying corporation tax at the 26.5% marginal rate is now slightly better off taking an extra pound as salary than as a dividend, so the split is worth recalculating every year.
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. Switching from an equivalent £40,000 petrol car at 120 g/km is worth more than the personal tax alone, because the company’s Class 1A National Insurance falls with the benefit too.
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. The rates are for your own car: you cannot claim them for a company car.
Is a company pension contribution really worth £10,000 a year in tax?
No, and this is where most guides overclaim. A £20,000 employer contribution for a director whose profits straddle the £50,000 marginal relief limit takes about £10,314 of tax out of this year, but that is tax deferred, not tax saved. The money goes into a pension that cannot be drawn until normal minimum pension age, 55 now and 57 from 6 April 2028, and 75% of it is taxable when it is drawn. It is still one of the best moves a director can make. It is not cash in hand this year.
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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. Scottish taxpayers face different income tax rates; dividend rates are UK-wide. Last reviewed 21 August 2026.