Business Proftiability

Company Profit Extraction: Salary, Dividends, and Pension Strategy

The definitive guide to calculating the optimal, tax-efficient mix of salary, dividends, and pension for directors.

⊛ 1 min read | By Brent Morrison | November 2025

Home > Calcuators & Tools > Business Proftiability > Company Profit Extraction

Autumn Budget 2025 Update

Impact Alert: The Chancellor's statement on 26 November 2025 has impacted the optimal profit extraction strategy.

While the Dividend Allowance remains £500, changes to dividend tax means you should review your remuneration strategy.

Common Questions About Profit Extraction

What is the most tax-efficient way to extract profit?
The optimal strategy for most UK directors involves a balanced mix: taking a low salary (typically up to the secondary NI threshold) to protect state benefits, withdrawing the bulk of income as Dividends (which are taxed at lower rates), and making direct Employer Pension Contributions to reduce Corporation Tax liability.
Are employer pension contributions tax deductible?
Yes. Unlike personal contributions, Employer Pension Contributions are treated as an allowable business expense. This means they reduce your taxable profit, effectively saving your company up to 25% in Corporation Tax immediately, while the money grows tax-free within the pension wrapper.
Why shouldn't I just take a higher salary?
Taking a high salary is often the least efficient method due to "tax leakage." A high salary attracts both Employee National Insurance (8%) and Employer National Insurance (15%), in addition to Income Tax. Dividends avoid NI entirely, making them a far more efficient mechanism for extracting profit above your personal allowance.
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Tax planning expertise for UK limited company directors.

Brent Morrison. Strategic accountancy partner at OutRise

ABOUT THE AUTHOR

Brent Morrison ACA CTA

Chartered Accountant and Chartered Tax Adviser

Member of the Institute of Chartered Accountants (ICAEW) and Taxation (CIOT) | Director at OutRise | He has over 12 years of experience advising high and fast growth companies across the UK. His approach combines a deep understanding of structuring data and systems, coupled with practical, real-world business experiences.

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