• Dividends are paid from post-tax profits, attract no National Insurance Contributions (NICs) but are subject to dividend tax. In 2025/26 the dividend allowance is £500, with dividend tax rates rising in April 2026, affecting future extraction strategies.

A common strategy is to pay a modest salary that utilises your personal allowance (e.g. around £12,570), then take further funds as dividends up to your tax-efficient limit.

Pension Contributions: A Tax-Efficient Extraction Route

Using employer pension contributions remains one of the most tax-efficient ways to remove profit from your business.

Contributions:

• Are deductible for corporation tax purposes;

• Avoid personal income tax and NICs for you; and

• Build long-term retirement wealth.

They must meet the “wholly and exclusively” test for the business, and current annual allowances and carry-forward rules should be considered in your plan.

Benefits & Other Profit Extraction Techniques

Aside from salary, dividends and pensions, you can use other extraction tools such as:

• Tax-free benefits (e.g. a company mobile phone under benefit rules);

• Director’s loans (with careful attention to repayment and tax implications);

• Commercial rent or interest on loans to the company where applicable.

Each has its own tax and NIC profile and may be a useful part of a bespoke extraction strategy.

Changes in 2025/26 Affecting Profit Extraction

Recent tax changes mean that a one-size-fits-all approach to profit extraction no longer works.

Key updates include:

• Dividends: Dividend income tax rates are due to rise from April 2026 (e.g. basic rate increasing by 2%), changing future extraction calculations.

• National Insurance & Employment Allowance: Employer NIC rules changed from April 2025, including an expanded Employment Allowance (though not available for single-director companies).

• Threshold Freezes: Personal allowance and income tax bands are frozen until at least 2031, creating “fiscal drag” that affects take-home income on profit extraction.

These updates make annual review and tailored planning essential.

How Trueman Brown Can Help

At Trueman Brown, we specialise in helping business owners optimise their profit extraction strategy in light of current tax law. Whether you are unsure how to balance salary and dividends, maximise pension contributions, or understand the impact of the Autumn Budget 2025, our advisors can help you plan a tax-efficient approach tailored to your situation.

📩 Email: mark@truemanbrown.co.uk
📞 Phone: 01708 397262

We can review your existing profit extraction plan, run projections under different scenarios and support your decisions with up-to-date tax expertise.

Frequently Asked Questions (FAQ)

Q: What is the most tax-efficient way to extract profits in 2025/26?
There’s no single answer—tax-efficient profit extraction often combines a modest salary, dividends, employer pension contributions and other tax-qualified benefits, depending on your circumstances.

Q: Has the dividend allowance changed for 2025/26?
Yes, it is set at £500 for the 2025/26 tax year. Dividend tax rates will rise in April 2026, which may affect strategies that focus on dividends.

Q: Should I always take a salary up to the personal allowance?
Many directors do this as it uses the personal allowance and can count toward state pension years, but the optimal salary level depends on NICs, corporation tax relief and personal tax rates.

Q: Can Trueman Brown help with profit extraction planning?
Yes. We provide tailored advice on extracting profits tax-efficiently, incorporating the latest tax rules and your business goals. Contact mark@truemanbrown.co.uk or call 01708 397262 for a consultation.