"We finished last year at £1.02m. Teamwear, gym apparel, a bit of equipment. I have been paying myself £2,000 a month since we launched, and whenever the account looked healthy I moved myself a bit more. My accountant says we need to put my pay on a proper footing before the year end. What does a founder pay plan actually look like at this size?"
Here is the direct answer. A founder pay plan for a £1m sports brand is one page with three numbers and a quarterly rhythm. A salary of £12,570, because that is the personal allowance and the salary is deductible against corporation tax. A dividend voted each quarter from profit that has already survived corporation tax and the next stock commitment. A pension contribution for profit you do not need in cash. The plan decides how much cash leaves the business before the money is spent.
Put numbers on it. An illustrative sports brand with £1m of sales and £120,000 of profit before founder pay can pay its founder £12,570 of salary and a £40,000 dividend. That is £52,570 of total pay, and the founder keeps £47,748.75 after tax in 2026/27. The company pays £1,135.50 of employer National Insurance and £24,418.04 of corporation tax, and still retains £41,876.46 in the business. Every figure is synthetic, not a client's books.
The numbers assume a category A director outside Scotland, below State Pension age, no other income and the full personal and dividend allowances, a 12 month accounting period, no Employment Allowance, no associated companies, and sales stated net of VAT.
The Short Version
Salary of £12,570 through payroll, dividends from post-tax profit after the stock commitment, and pension for the surplus. That is the plan. The rest of this post is the numbers, the order and the calendar.
Why £1m Is The Awkward Size
Sports brands at £1m live in a narrow band. You are big enough that HMRC, a lender and a buyer all expect a real payroll and real paperwork. You are small enough that a £20,000 mistake in your own pay is a serious problem. And your cash is seasonal.
The Q4 buy is the obvious one. Stock ordered in October and November, sold through Black Friday, Christmas and the January clearance, paid for before most of the cash arrives. If your Q4 buy is £120,000 to £150,000, that cash goes out before the season lands. If your pay is sized off the bank balance in a good week, you will pay yourself well in the quiet months and starve the business in the loud ones.
Then there is the tax band. Corporation tax is 19% on profits up to £50,000, 25% above £250,000, and marginal relief in between. In that middle band every extra pound of profit is taxed at 26.5% at the margin, even though the average rate is lower. Your pay decision changes the profit number that sits in that band, so make it deliberately.
One more £1m specific. If you are the only director and the only person on the payroll above the £5,000 secondary threshold, you cannot claim the Employment Allowance. The allowance is worth up to £10,500 a year, but a single director cannot be the only employee liable for secondary Class 1 National Insurance. The moment you employ someone else above the threshold, the allowance can cover the employer National Insurance on both of you. Until then, budget the £1,135.50 on your own salary as a real cost.
The Three Levers: Salary, Dividends, Pension
You pay yourself through three doors, each taxed differently, and the plan is about using them in the right order. The rate mechanics are in our post on what a 7-figure sports brand should pay its founder. This post is the plan around them.
Salary. The company pays you through payroll, deducts income tax and employee National Insurance, and gets a corporation tax deduction for the salary and its own employer National Insurance. At £12,570 you clear the £6,708 lower earnings limit so the year counts for your state pension, and you pay no income tax or employee National Insurance because the salary stops at the personal allowance and the primary threshold.
Dividends. These are your share of profit after corporation tax. The company gets no deduction for them. You pay dividend tax at rates that depend on your total income, with no National Insurance on either side. They need distributable profits, a board decision and a dividend voucher. A dividend paid without distributable profits is unlawful, even if the bank account looks healthy on the day.
Pension. Company contributions to a registered pension are not charged on you as earnings and do not attract National Insurance. They are usually deductible for corporation tax if they are wholly and exclusively for the trade. The standard annual allowance is £60,000. If you have flexibly accessed defined contribution benefits, later defined contribution saving is generally capped at £10,000, and unused allowance cannot increase that cap. The allowance tapers if both your threshold income is above £200,000 and your adjusted income is above £260,000. You may be able to carry forward unused allowance from the previous three tax years, and you normally cannot touch the money until 57 from April 2028. A pound of profit taken as a dividend in the higher band leaves you about 48p at a 25% corporation tax rate. If the contribution is deductible and within your allowances, the same pound goes into the pension whole.
| Founder pay number, 2026/27 | The figure | What it means |
|---|---|---|
| Personal allowance | £12,570 | Income tax free, tapered above £100,000 of adjusted net income and gone at £125,140 |
| Basic rate band | Up to £50,270 of total income | Salary taxed at 20%, dividends at 10.75% inside it |
| Dividend allowance | £500 | First £500 of dividends tax free, then the band rates |
| Dividend tax rates | 10.75% / 35.75% / 39.35% | Basic, higher and additional rate bands |
| Employee National Insurance | 8% from £12,570 to £50,270, then 2% | Nothing to pay on a £12,570 salary |
| Employer National Insurance | 15% above £5,000 | £1,135.50 on a £12,570 salary, and no Employment Allowance for a sole director |
| Corporation tax | 19% to £50,000, 25% above £250,000, 26.5% marginal in between | The marginal rate matters when you decide whether to take more profit out |
| Pension annual allowance | £60,000 | Carry forward up to three years of unused allowance |
The Plan, In The Right Order
Most founder pay advice starts with the tax rates. Start with cash instead. The order below is the one that survives a bad November.
Step one: set the profit number. Use profit before founder pay from the management accounts, not the bank balance and not the sales dashboard. Our post on how a 7-figure sports brand should structure their P&L shows where that profit actually comes from. If you do not have monthly management accounts, fix that first, because every number depends on it.
Step two: take the salary. £12,570 through real payroll, with a Full Payment Submission to HMRC on or before payday. The company also pays £1,135.50 of employer National Insurance unless it can claim the Employment Allowance.
Step three: calculate the tax. Apply corporation tax at the right rate, including marginal relief if profit lands between £50,000 and £250,000. At £106,294.50 of profit the bill is £24,418.04, an effective rate of just under 23%. At £186,294.50 it is £45,618.04, about 24.5%. Above £250,000 it is a flat 25%.
Step four: ring-fence the commitments. The next stock buy, the VAT bill, the corporation tax, and a buffer for the season that does not land. Work out the cash you need before you decide what you can take.
Step five: vote the dividend from what is left. Board minutes, a dividend voucher, and a payment date. This is a cash policy, not a legal rule. Under it, do not pay or credit a dividend unless the company has both the distributable profit and the cash, however good the profit looks on paper.
Here is the same policy run at three profit levels. The salary stays at £12,570, the dividend is sized to leave roughly half of post-tax profit in the business, and the founder's net pay is after income tax, National Insurance and dividend tax at 2026/27 rates.
| Profit before founder pay | £60,000 | £120,000 | £200,000 |
|---|---|---|---|
| Salary | £12,570 | £12,570 | £12,570 |
| Employer National Insurance | £1,135.50 | £1,135.50 | £1,135.50 |
| Corporation tax | £8,795.96 | £24,418.04 | £45,618.04 |
| Dividend | £18,750 | £40,000 | £70,000 |
| Retained in the business | £18,748.54 | £41,876.46 | £70,676.46 |
| Founder's net pay | £29,358.12 | £47,748.75 | £67,023.75 |
Read the middle column twice. A brand with £120,000 of profit before founder pay can pay its founder £52,570, put £47,748.75 in the founder's pocket, and still leave £41,876.46 in the company. That is a founder paid properly and a business that can still buy stock in October.
The £60,000 column is the honest one. On this year's profit alone, that example cannot support a £40,000 dividend. It can afford a salary and a modest dividend, and should keep the rest. A plan that assumes next year's profit is a loan from the stock account.
The Same £63,100 Of Profit, Three Ways
| Route | Founder keeps | What happens to the £63,100 |
|---|---|---|
| All salary | £42,760.01 | £55,521.74 of gross pay, £9,640.70 of income tax, £3,121.03 of employee National Insurance and £7,578.26 of employer National Insurance |
| £12,570 salary plus £40,000 dividend | £47,748.75 | No income tax or employee National Insurance on the salary, £4,821.25 of dividend tax, £1,135.50 of employer National Insurance, and £9.54 stays in the company |
| All dividends | £46,144.71 | £50,128.50 of dividend after corporation tax, £3,983.79 of dividend tax, and no National Insurance at either end |
The mixed route wins by £1,604.04 over all dividends and £4,988.74 over all salary. The all dividend route is closer than most founders expect, because dividends avoid National Insurance, but it loses the corporation tax deduction that the salary creates. The all salary route is the worst of the three, because it stacks income tax and National Insurance on both sides. Standard advice is arithmetic, not ideology: salary to the personal allowance, dividends for the rest of the basic band, pension for the surplus.
The Calendar That Makes It A Plan
A plan without dates is a wish. These are the dates that matter in a sports brand's year.
April. The new tax year starts on 6 April, and the rates and thresholds can change. Set the salary for the year, check the Employment Allowance position, and decide the pension contribution you can commit to.
Every quarter. Read the management accounts, then vote the dividend at the same meeting. The vote comes after the numbers, not before. Board minutes, a voucher, and a payment date.
October and November. The Q4 stock commitment comes first. Size the dividend after the purchase order, not before it. This is the single most important discipline in a sports brand, because the season that pays for next year is bought with cash you have already earned. Our post on cash flow forecasting for DTC brands shows how to wire the stock plan and the cash plan together.
January. The clearance lands cash in the account. Do not mistake clearance cash for profit. Some is stock you paid for in the autumn, some is VAT. Pay the dividend from the profit, not from the tide.
Year end. For a company outside the quarterly instalment rules, pay the corporation tax nine months and one day after the accounting period ends. A private company normally files its accounts with Companies House within nine months of the year end and its Company Tax Return within 12 months. If the year end is 31 March, the tax is due on 1 January, the accounts by 31 December and the return by the following 31 March.
Four Ways Founders Break Their Own Plan
1. Transfers instead of pay. The £2,000 a month plus top-ups pattern is the most common one I see. Money moved without payroll or a dividend is not automatically a loan, but it is not pay either, and an unexplained transfer can end up as a director's loan, a PAYE failure or both.
2. Dividends without distributable profits. A dividend is a distribution of profit, not a withdrawal of cash. If the accounts do not support it, the payment is unlawful and can be reversed or taxed differently. Interim accounts can help, but they have to be real accounts, not a spreadsheet with a good month in it. Our post on the £1m revenue trap explains how brands get profitable and broke together.
3. Setting the salary at £50,270 to use the whole basic band. It feels tidy. It is expensive. For a category A director, salary between £12,570 and £50,270 bears 20% income tax and 8% employee National Insurance, and the company normally bears 15% employer National Insurance above £5,000. A dividend above the £500 allowance that falls in the basic band bears 10.75%, but it must come from profit that has already paid corporation tax. The dividend still wins at this level, but by pence rather than miles. Salary is for the allowance. Dividends are for the band.
4. Paying yourself too little to look lean. The founder on £20,000 who lives on the company card is not frugal, they are a due diligence problem. A lender has to work harder to verify the income, a buyer cannot see a clean payroll, and the card payments can become a benefit in kind. The exit ready version of you has a salary the business can prove it supported.
FAQ
What should a £1m sports brand pay its founder?
A salary of £12,570, because that uses the personal allowance and is deductible against corporation tax, then a dividend from post-tax profit once the stock buy and tax bills are funded. At £120,000 of profit before founder pay, an illustrative plan pays £12,570 of salary and a £40,000 dividend, which nets the founder £47,748.75.
Should I take a salary or dividends first?
Salary first, up to £12,570, assuming no other income and no Employment Allowance. It is deductible against corporation tax and it builds your National Insurance record. Above that, dividends are usually more efficient until your total income reaches £50,270, because they carry no National Insurance. Above the basic band, dividends are taxed at 35.75%, so pension becomes the better home for profit you do not need in cash.
Can I just move money out when the business can afford it?
Only as salary through payroll, a properly voted dividend from distributable profits, repayment of money you have personally put into the company, or reimbursement of business expenses. Anything else is a director's loan, and a loan still outstanding nine months and one day after the year end can create a company charge at 35.75% for loans made from 6 April 2026. A £70,000 loan made this tax year would carry a £25,025 charge, reclaimable if you repay, but the cash flow damage is done in the meantime.
The Bottom Line
A £1m sports brand does not need a clever founder pay scheme. It needs a decision made once, written down, and repeated every quarter. Salary to £12,570 through real payroll. Dividends from profit that has already paid corporation tax, voted after the stock commitment is funded. Pension for the surplus. The loan account at zero before the year end. That is the whole plan, and it survives a bad season, a lender's questions and a buyer's diligence.
If you want your current pay structure checked against the 2026/27 numbers, that is the kind of review we do. We are specialist social commerce accountants, we work with UK sports brands between £1m and £20m, and most founders we meet are paying themselves by accident. Book a call and we will show you what your founder pay plan should look like, in numbers.