Yes, you can. There is no rule that a director-shareholder must take dividends, and many owner-managed companies pay salary alone. The choice is not about permission, but about total cost and flexibility. Salary is an expense of the company, so it reduces taxable profit for corporation tax. A dividend is not an expense: it is paid out of after-tax profit, and only if the company has sufficient distributable profits.
For 2026/27, PAYE salary is subject to income tax after the £12,570 personal allowance, employee National Insurance at 8% above the primary threshold up to the upper earnings limit and 2% above it, and employer National Insurance at 15% above the £5,000 secondary threshold. That employer charge is the main extra cost compared with dividends, because dividends do not attract National Insurance. For 2026/27, dividends above the £500 dividend allowance are taxed at 10.75% at the basic rate, 35.75% at the higher rate, and 39.35% at the additional rate. The salary route can therefore be more expensive at higher incomes, although the corporation tax saved on the salary deduction partly offsets the National Insurance cost if the company is profitable.
There are practical advantages to PAYE-only pay. Income is regular and predictable, it is straightforward for mortgage and loan applications, and salary can support pension contributions and state pension qualifying years, subject to the relevant thresholds. It also avoids the need to check distributable profits before each payment. The downsides are cash flow, because PAYE and employer National Insurance must be paid to HMRC on the payroll timetable even in a quiet month, and loss of flexibility: you cannot easily vary salary to match fluctuating profits in the way you can with dividends. Check whether Employment Allowance is available in your circumstances, because a company whose only employee is a director is generally excluded. Run both routes on your actual profit and income before changing, as the answer depends on your tax band, other income, and pension plans.
