If your dental practice runs through a limited company, almost all of your take-home pay arrives as a combination of a small salary and dividends. The logic of that combination did not change on 6 April 2026, but the numbers underneath it did. The dividend rates rose by two points, while corporation tax, the salary thresholds and the income tax bands all held steady. That means the split is worth a fresh look for 2026/27, even if your set-up has not changed.

This guide walks the two decisions that make up the split: how much salary to take, and how much to layer on as dividends. We define every threshold that matters, explain the Employment Allowance trap that catches sole-director dentists, then work the optimal extraction at £100,000 and £150,000 of profit at the new rates. We also show, side by side, what the 2026/27 rise costs on an identical split. As ever, the figures are illustrative and your own should be modelled, but the structure of the decision is the same for every owner-director.

What changed for 2026/27 and why the split needs a fresh look

From 6 April 2026, Finance Act 2026 (c. 11), section 4 raised the dividend tax rates:

  • Ordinary rate (basic band): 8.75% to 10.75%.
  • Upper rate (higher band): 33.75% to 35.75%.
  • Additional rate (above £125,140 income): 39.35%, unchanged.
  • Dividend allowance: £500, unchanged.

Corporation tax is unchanged at 19% to £50,000, 25% above £250,000, with marginal relief between. The income tax and National Insurance thresholds are unchanged from 2025/26. So the split logic is identical to last year, but every dividend pound now costs a little more, which sharpens the question of how much salary to take and when to stop extracting.

The two moving parts: a small salary plus dividends on top

Owner-directors take a low salary for three reasons. It is a deductible expense that reduces the company's corporation tax. It builds a qualifying year for the state pension and, for an NHS dentist, a pensionable officer record. And, kept below the relevant thresholds, it attracts little or no National Insurance. Dividends then sit on top. They carry no National Insurance at all, which is their advantage, but they are paid from post-corporation-tax profit and, from 2026/27, taxed at the higher 10.75% and 35.75% rates. The art of the split is choosing the salary level that minimises wasted National Insurance and then sizing the dividend layer to your needs and your tax bands. We set out the broader extraction picture, including pensions and director loans, in our guide to dental practice profit extraction, and the parent salary-versus-dividend question in our guide to how to pay yourself as a dental practice owner.

The salary level decision, part 1: the thresholds that matter

Four numbers govern the salary choice for 2026/27:

  • Personal allowance, £12,570. Income up to this is free of income tax. A salary at this level uses the allowance fully.
  • Secondary (employer National Insurance) threshold, £5,000. The company pays employer National Insurance at 15% on salary above this. The threshold was cut to £5,000 and the rate raised to 15% from 6 April 2025.
  • Primary (employee National Insurance) threshold. Aligned with the personal allowance at £12,570, so a salary at or below that level produces no employee National Insurance.
  • Lower Earnings Limit, £6,708. Earnings at or above this secure a qualifying year for the state pension and preserve the NHS officer entitlement, even though no National Insurance is actually due between the Lower Earnings Limit and the thresholds above.

The Lower Earnings Limit is the key to the lower-salary option: a salary of £6,708 still counts as a qualifying year, while keeping the slice exposed to employer National Insurance to just £1,708.

The salary level decision, part 2: the Employment Allowance trap for a sole director

The Employment Allowance lets eligible employers offset up to £10,500 of employer National Insurance in 2026/27. If a dental company could claim it, the obvious move would be a £12,570 salary, because the £1,136 of employer National Insurance would be wiped out and you would still get the full personal allowance and corporation tax deduction.

The trap is that a company whose only employee paid above the secondary threshold is a single director cannot claim the Employment Allowance. Most one-dentist companies fall squarely into this exclusion. That single rule is what makes the salary decision genuinely live: without the allowance, every pound of employer National Insurance on salary above £5,000 is a real cost, so paying right up to £12,570 is no longer the automatic answer it is for an unincorporated person.

So which salary: £6,708 versus £12,570 for the sole-director dentist

For a sole director with no other employee, weigh the two realistic options:

  • Salary £6,708. Employer National Insurance is just 15% of the £1,708 above the secondary threshold, about £256. You secure the qualifying year and keep more personal allowance free to set against dividends. The trade-off is a lower pensionable salary on the NHS officer route.
  • Salary £12,570. Employer National Insurance is 15% of the £7,570 above the secondary threshold, about £1,136, which a sole director cannot offset. But the company gets corporation tax relief on the extra salary and employer National Insurance, recovering part of that cost, and the pensionable salary is higher.

Because the corporation tax relief claws back much of the employer National Insurance, the total-tax gap between the two is usually only a few hundred pounds, typically with £6,708 marginally ahead on tax and £12,570 ahead on pensionable pay. For a sole-director principal we reviewed, switching from a £12,570 to a £6,708 salary changed the total-tax answer by only a few hundred pounds, but it materially changed the pensionable salary, which is the figure that actually mattered to them. Where a genuinely employed spouse is on the payroll doing real work, the company can usually claim the Employment Allowance, the employer National Insurance disappears, and £12,570 becomes the better answer.

Dividends on top at the new 2026/27 rates

Once the salary is set, dividends fill the rest from post-corporation-tax distributable reserves. At 2026/27 rates:

  • The first £500 is covered by the dividend allowance and taxed at 0%.
  • Dividends within the basic-rate band, up to £50,270 of total income, are taxed at 10.75%.
  • Dividends in the higher-rate band, from £50,270 to £125,140, are taxed at 35.75%.
  • Dividends above £125,140 are taxed at 39.35%.

The jump from 10.75% to 35.75% at the £50,270 line is steep, so the single most valuable thing the split can do is keep as much dividend as your needs allow inside the basic band, and think hard before pushing dividends across that threshold purely to draw cash you do not need this year. The marginal-relief mechanics behind the distributable figure are covered in our guide to corporation tax for dental limited companies.

The £500 dividend allowance and where it bites

A common and expensive misconception is that the £500 allowance is tax-free money on top of your bands. It is not. The allowance is a 0% rate that still uses up your basic-rate band. So if you have £37,700 of basic-rate band left after a £12,570 salary, the first £500 of dividends is taxed at 0% but it occupies £500 of that band, leaving £37,200 to be taxed at 10.75% before the higher rate begins. The allowance reduces the tax on a small slice; it does not push the higher-rate threshold upward. Plan dividends against the £50,270 ceiling, not the allowance.

Dividends can only come from distributable reserves

Before working the examples, one rule underpins all of them: a dividend is lawful only if the company has enough distributable reserves to cover it. Reserves are accumulated post-tax profit, not the cash in the bank, and the two are often very different in a dental practice with lumpy patient receipts, NHS payment timing and equipment finance. You can have money in the account and no reserves to distribute, for example shortly after a large capital purchase, or in a loss-making year. Paying a dividend you cannot cover creates an unlawful distribution that HMRC may recharacterise, often as salary, which drags National Insurance back in, or as an overdrawn director's loan, which can trigger a section 455 corporation tax charge.

The practical discipline is to declare dividends from a recent set of management accounts that confirm the reserves are there, to minute each declaration at board level, and to issue a dividend voucher recording the date, the shareholder, the shareholding and the amount. This paperwork is not bureaucratic box-ticking. It is the evidence that the payment was a dividend at all, and it is the first thing scrutinised if the split is ever questioned. Money taken ahead of declared dividends or salary sits as an overdrawn loan in the meantime, with its own tax consequences, so the timing and the records matter as much as the rates.

Worked optimal extraction at £100,000 profit (2026/27)

Take £100,000 of company profit before owner reward, a single director, 2026/27 rates.

Salary £12,570. Employer National Insurance is 15% on the £7,570 above the £5,000 threshold, about £1,136. Salary plus that cost, £13,706, is deductible for corporation tax. Profit after that cost is £86,294. Corporation tax with marginal relief is about £19,118, an effective rate just above 22% across the band. Distributable profit is about £67,176.

Dividends. The salary uses the £12,570 personal allowance. The £500 allowance covers the first slice. About £37,200 of dividends then falls in the basic band at 10.75% (around £3,999), and the balance, about £29,406, falls in the higher band at 35.75% (around £10,513). Dividend tax is roughly £14,537. Total tax across employer National Insurance, corporation tax and dividends is about £34,790, leaving the owner roughly £65,210 in hand from £100,000 of profit.

The £6,708 alternative. Drop the salary to £6,708 and employer National Insurance falls to about £256. More profit stays in the company to suffer corporation tax, but the owner has more unused personal allowance to set against dividends and pays less employer National Insurance. For a sole director without the Employment Allowance, the two outcomes land within a few hundred pounds of each other on total tax, with £6,708 usually a fraction ahead on tax and £12,570 ahead on pensionable salary. This is the trade-off, in numbers: choose on pensionable pay, because the tax barely moves.

Worked optimal extraction at £150,000 profit (2026/27)

At £150,000 the higher-rate band does most of the work and the personal allowance taper appears.

Salary £12,570, employer National Insurance about £1,136. Profit after salary cost is £136,294. Corporation tax with marginal relief is about £32,368. Distributable is about £103,926.

Dividends. Drawing it all, a small basic-band slice is taxed at 10.75%, a large slice at 35.75%, and the portion taking total income above £125,140 at 39.35%, with the personal allowance tapering away above £100,000. Dividend tax is about £27,675, and the marginal cost of the last pounds extracted is plainly high. That is the signal to consider retaining some profit rather than distributing it all. Profit left in the company has paid only corporation tax; it has not touched the 35.75% or 39.35% dividend rates at all. If the owner does not need the full distributable amount this year, leaving a slice inside the company defers the dividend layer entirely, and may let it be drawn in a future, lower-income year. Extract for genuine need, not by reflex.

2025/26 versus 2026/27: what the rate rise costs on the same extraction

Hold the £12,570 salary and the same dividend volume constant, and change only the dividend rates. At £100,000 of profit, the dividend tax on that extraction was about £13,203 in 2025/26 at 8.75% and 33.75%. In 2026/27 the identical extraction costs about £14,537. The rise costs this owner roughly £1,334 a year for taking home the same money. At £150,000 of profit the gap is larger, over £2,000 a year, because more of the dividend sits in the higher band where the increase was from 33.75% to 35.75%. That recurring figure is the real, year-on-year cost of Finance Act 2026 to an incorporated dentist's extraction, and it is exactly why the split is worth re-examining now.

Paying dividends to a spouse: when it works and when it does not

One of the most effective ways to soften the higher 2026/27 rates is to spread dividends across two people rather than one, so that a second basic-rate band and a second set of allowances are used. If a spouse genuinely owns shares in the dental company, dividends paid to them in proportion to that shareholding use their own personal allowance and their own basic-rate band before the 35.75% rate ever bites. For a household where one dentist would otherwise pour most of the dividend into the higher band, splitting the distribution can keep more of it in the 10.75% band overall.

The conditions are strict and worth respecting. The shareholding must be real, with the shares carrying genuine rights, and the arrangement must not be an artificial diversion of one spouse's income. Where a spouse is also an employee, the pay and the dividend are assessed separately: the salary must reflect real work at a market rate, while the dividend follows the shareholding. Used properly this is established planning; used as a paper exercise to move income with no substance, it invites an HMRC challenge under the settlements rules. Treat it as a structural decision to take with advice, not a year-end adjustment.

The £100,000 trap: the 60% effective band that ruins a lazy split

There is one zone where an inattentive split is punished hard, and every higher-earning owner-director should know it. Between £100,000 and £125,140 of total income, the personal allowance is withdrawn at £1 for every £2 of income. That withdrawal sits on top of the tax already due on the income in that band, producing an effective marginal rate far above the headline figures. For salary it is the well-known 60% zone; for dividends taking total income across that range, the effective cost of those pounds is similarly inflated once the lost allowance is counted.

The lesson for the split is to treat £100,000 of total income as a soft ceiling that you cross deliberately, not by accident. If you do not need the cash, stopping the dividend before total income reaches £100,000 keeps your personal allowance intact and avoids the punitive band entirely. If you must cross it, do so knowing the true marginal cost of those pounds, and consider whether retaining that slice in the company, or routing income to a spouse, is the better answer. A split set once at the start of the year and never revisited is exactly how owners stumble into this band; a mid-year review catches it while there is still time to adjust.

The factors that should override pure tax efficiency

The lowest-tax split is rarely the right split once everything is in view:

  • NHS pensionable pay. Salary is pensionable for the officer route; dividends are not. A floor-level salary is the most tax-efficient choice but produces the smallest pensionable figure, and for an NHS dentist the lost CARE accrual over a career can dwarf the tax saved. Our guide to NHS pensionable pay for dentists explains the officer rules, and a contract-holding principal should confirm their own position with NHSBSA.
  • The annual allowance for high earners. A principal with large historic NHS service can breach the £60,000 pension annual allowance on pension growth alone, with tapering where threshold income exceeds £200,000 and adjusted income exceeds £260,000. Incorporation changes the income mix and can interact with this, so it should be modelled, not assumed.
  • Cash flow and mortgage affordability. Lenders and affordability assessments look at income on paper; an ultra-low salary can complicate borrowing.
  • Retained earnings for reinvestment. Money you do not extract is taxed once, at corporation tax, and is the cheapest capital for a refit or acquisition.

A practical extraction checklist for 2026/27

  • Set the salary by your Employment Allowance status: a sole director with no other employee usually chooses between £6,708 and £12,570, and a company with a genuinely employed spouse can often justify £12,570 with the allowance claimed.
  • Weigh pensionable pay before cutting salary to the floor, especially on the NHS officer route.
  • Declare dividends only from post-corporation-tax distributable reserves, supported by a board minute and a dividend voucher each time.
  • Watch the £50,270 and £125,140 thresholds: the 35.75% and 39.35% steps are where the cost jumps.
  • Consider employing a spouse or making them a genuine shareholder to spread income, provided the work or shareholding is real.
  • Review mid-year so dividends can be adjusted before year-end, not after.
  • Model your own figures, including the pension impact, rather than relying on a generic split.

The mechanics of the split are simple to state and easy to get slightly wrong. For 2026/27 the salary decision turns on the Employment Allowance trap and your pensionable-pay priorities, and the dividend decision turns on staying alert to the £50,270 step now that every dividend pound costs two points more than it did. Get both right, weigh the pension before the tax, and the limited company can still do its job well, just for narrower and more deliberate reasons than before.