Dividend vs Salary for Electricians: Optimise Your Ltd Company Tax in 2026

If you operate your electrical business through a limited company, how you extract money from the company makes a significant difference to your tax bill. Take too much as salary and you pay unnecessary National Insurance. Take everything as dividends and you miss out on your personal allowance and state pension credits.

The optimal strategy is to pay yourself a carefully calculated salary (to use your personal allowance and qualify for state pension) and take the rest as dividends (which are taxed at lower rates and attract no National Insurance). Getting this split right can save you £3,000 to £6,000+ per year compared to being a sole trader on the same income.

This guide uses 2026/27 tax year figures and explains the optimal split for electricians at different profit levels.

The optimal salary depends on balancing three factors: using your personal allowance, minimising National Insurance, and qualifying for state pension.

Our recommendation: £12,570 salary. The £480 of employer NI is more than offset by the corporation tax saving of £2,390 on the salary, plus you fully utilise your personal allowance. The net benefit over the £9,100 option is approximately £180 per year — small, but there is no reason to leave it on the table.

After paying yourself the optimal salary, the remaining profit (after corporation tax) can be extracted as dividends. Dividends are taxed at lower rates than salary and attract no National Insurance.

Key point: Dividends do NOT attract National Insurance contributions. This is the primary reason the salary/dividend split saves money compared to taking everything as salary. On salary, you would pay 8% employee NI plus 13.8% employer NI (a combined rate of 21.8% on top of income tax). On dividends, you pay only dividend tax.

Before you can take dividends, the company must pay corporation tax on its profits. The rate depends on the level of profit.

Important: Corporation tax is calculated on profits AFTER deducting your director salary, employer NI contributions, pension contributions, and all other allowable business expenses. If your company has £60,000 of profit before salary and you pay yourself £12,570, corporation tax is calculated on £60,000 - £12,570 - £480 (employer NI) = £46,950. At 19%, that is £8,921 of corporation tax.

Here is a complete worked example for a limited company electrician with £60,000 of company profit before director remuneration in 2026/27.

Understanding National Insurance thresholds is critical to optimising your salary level. Here are the key figures for 2026/27.

Key insight: At a salary of £12,570, you are above the lower earnings limit (£6,396) which means the year counts for state pension, but below the primary threshold so employee NI is £0. Employer NI is payable on the amount above £9,100 (= £3,470 at 13.8% = approximately £479), but this is a tax-deductible business expense.

IR35 is anti-avoidance legislation that targets "disguised employment." If HMRC determines that your limited company relationship with a client is really an employment relationship, your income from that client is taxed as employment income — you lose the salary/dividend tax advantage.

For domestic electricians with a broad customer base, IR35 is rarely an issue. For electricians subcontracting to one or two main contractors full-time, IR35 is a genuine risk that should be assessed by a specialist.

Running a limited company involves more filing and compliance than being a sole trader. You need to decide whether to handle it yourself or use an accountant.

Our view: For a limited company, an accountant is almost always worth it. The tax savings from proper planning typically exceed the fee, and the hours you save can be spent earning on the tools. A good accountant pays for themselves.

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