For most owner-managed companies, profit extraction is a two-item menu: a small salary and the rest as dividends. It has been the default for a decade because it worked. It still works, but the arithmetic has shifted, and the gap between the default and a properly constructed mix is now wide enough to be worth real money.
What changed in April 2026
From 6 April 2026, dividend tax rates rose by two percentage points. The ordinary rate went from 8.75% to 10.75%, and the upper rate from 33.75% to 35.75%. The additional rate stays at 39.35%. Set against a £500 dividend allowance and frozen thresholds pulling more income into higher bands, extracting the same money as dividends simply costs more than it did.
None of that makes dividends wrong. It makes the alternatives relatively better, and most companies never look at them. Our guides to the most tax-efficient director's salary and the salary versus dividend question cover the core decision; what follows is what sits alongside it.
1. Employer pension contributions
Still the single most efficient route out of a company for most owners. An employer contribution to a registered pension is deductible against Corporation Tax, carries no National Insurance for either side, and is not taxable income for the director when paid in. Compare that with a dividend, paid from profits already taxed at 19% or 25%, then taxed again on the individual.
The annual allowance is £60,000, tapered for high earners, and unused allowance from the previous three tax years can often be carried forward, which makes a large one-off contribution possible in a good year. The trade-off is access: the money is locked until pension age. For an owner in their 50s taking profits they do not immediately need, that trade-off is usually easy.
2. Rent for premises you own personally
If the company trades from a property you own, or genuinely works from part of your home, it can pay you rent at a commercial rate. The rent is deductible for the company and taxable on you as property income, but crucially it carries no National Insurance at all.
Two cautions. The rent must be commercially justifiable and supported by an agreement, not a number chosen to suit the tax result. And where the company pays rent for premises you own personally, that can restrict Business Asset Disposal Relief on an eventual sale of the property, worth modelling before you start rather than discovering at exit.
3. Interest on your director's loan
Where you have lent money to your own company, and many owners have, without ever documenting it, the company can pay you interest at a commercial rate. Interest is deductible for the company and is savings income for you, potentially covered by the personal savings allowance (£1,000 for basic-rate taxpayers, £500 for higher-rate) and taxed outside the dividend rates entirely.
The administration is real: the company must deduct basic-rate tax at source and report it quarterly on form CT61. This route suits a director's loan account that is meaningfully in credit. If yours is overdrawn instead, the priority is the Section 455 charge, not interest.
4. Trivial benefits
Small, but genuinely free. Benefits costing £50 or less that are not cash and not a reward for work are exempt from tax and NIC, capped at £300 a year for directors of close companies. Six £50 benefits a year, entirely tax-free, with no reporting. Full conditions are in our guide to trivial benefits.
5. An electric company car
A conventional company car is usually a poor way to extract value. An electric one is a different proposition: the benefit-in-kind charge sits at 4% of list price for 2026/27, against 25% to 37% for most petrol and diesel equivalents. The company gets a deduction, the employer NIC is small because the benefit is small, and salary sacrifice remains effective for EVs where it has been neutralised for almost everything else. We work through the numbers in the tax case for electric company cars.
6. Mileage in your own car
If you use your own vehicle for business, the company can reimburse 45p per mile for the first 10,000 business miles and 25p per mile thereafter, free of tax and NIC. For a director covering real business mileage, this is straightforward, untaxed reimbursement that costs the company a deductible expense.
The mix is the point
No single route is "the answer". The right structure normally combines a salary set to protect your National Insurance record and use allowances efficiently, dividends up to a sensible band, an employer pension contribution sized to the year's profits, and whichever of rent, interest and benefits genuinely apply to your circumstances. That mix should be reviewed before the year end, while it can still be changed, which is exactly the argument in our piece on proactive planning versus reactive returns.
We model extraction strategies for owner-managed companies every year through our tax planning service, running the combinations against your actual profits rather than a rule of thumb. If you are still on salary-plus-dividends by default, book a profit extraction review and find out what the alternative is worth.