"We're a sports brand doing about £2.5m a year. Kit, footwear, some equipment. I've been paying myself £2,000 a month since we started and topping it up with transfers whenever the account looked healthy. My accountant says put it on a proper footing. What should a founder of a brand this size actually pay themselves?"
Here is the direct answer. Pay yourself a salary of £12,570 a year, because that is the personal allowance and the salary is deductible against corporation tax. Top it up with dividends until your total income reaches £50,270, the top of the basic rate band. On £50,000 of total pay that structure nets you about £46,030 after tax in 2026/27, and it costs the company about £51,136, including employer National Insurance. The transfers trick you have been running is the most expensive version of all: money moved without payroll or a dividend is a directors' loan, and loans have their own tax bill waiting for them.
Here's the Short Version
- The ladder: salary to £12,570, dividends to £50,270 of total income, pension for profit you can afford to lock away
- At 2026/27 rates, £50,000 as salary and dividends nets you £46,030. The same £50,000 as pure salary nets £39,520, because salary pays National Insurance and higher tax that dividends avoid
- Dividends above the basic rate band are taxed at 35.75% in 2026/27, and the dividend allowance is £500, not the £2,000 it once was
- Between £100,000 and £125,140 of adjusted net income you lose your personal allowance, pushing the marginal income tax rate on extra salary to 60% before National Insurance. Do not park yourself there
- A sports brand's pay decision has to survive its own cash cycle: Q4 stock is bought in October and November and sold through December and January, so pay sized off the bank balance will starve the business exactly when it needs feeding
- Company pension contributions are the best paid thing most founders never take: no income tax, no National Insurance, and a corporation tax saving on the way in
- Only take dividends out of real distributable profits, vote them properly, and keep the directors' loan account at zero: a loan still outstanding nine months and one day after the year end can create a 35.75% company charge on the balance, recoverable if you repay later
The numbers below are current for the 2026/27 tax year and assume a founder in England, Wales or Northern Ireland, below state pension age, with no other income, no student loan and no Employment Allowance claimed. The worked example is an illustrative sports brand with synthetic planning numbers, not any client's books. Swap in your own figures, but steal the method.
Why Sports Founders Get This Wrong In Both Directions
Sports brands seem to produce the two opposite failures more than any other category I work with. Version one is the founder who has been on the same small salary since launch, because everything got reinvested into the next stock order, and now the business is seven figures with a founder who technically earns less than the warehouse team. Version two is the founder who treats the business account as a personal one: a transfer here, a card payment there, and a growing pile of unexplained movements that a buyer, a lender or HMRC will one day ask about.
Both are the same mistake wearing different clothes. If you do not decide your own pay deliberately, the cash flow and the tax system decide it for you. And in sports there is a specific reason the decision gets deferred: the money genuinely is better in stock. Your Q4 buy lands in October and November, the season clears through January, and every extra pound of pay feels like a pound not spent on the thing that grows the brand. That instinct is right about the money and wrong about the structure. A proper salary and a properly voted dividend do not stop you reinvesting profit. They just make the amount you take deliberate, documented and tax-shaped, instead of accidental.
Start from one number: profit after tax that you do not need to reinvest in stock, athlete deals, creator campaigns or product. That number sets the ceiling on everything that follows. Our post on how a 7-figure sports brand should structure their P&L shows where the money actually goes before it ever reaches you.
The Three Levers: Salary, Dividends, Pension
As a director of your own limited company you pay yourself through three doors, and each is taxed differently.
Salary. The company pays you through payroll, it is deductible against corporation tax, and you pay income tax and employee National Insurance on it. Your company pays employer National Insurance at 15% on earnings above £5,000 a year in 2026/27. A salary also builds your National Insurance record toward the state pension, and it is the income lenders find easiest to verify, which matters the day you want a facility for a Q4 stock build.
Dividends. These are your share of the company's after tax profits. The company gets no corporation tax deduction for them, and you pay dividend tax personally at rates that depend on your total income, with no National Insurance on either side. Dividends need distributable profits to come from and a vote to be legal, recorded in board minutes with a dividend voucher.
Pension. A commercial employer contribution to a registered pension is normally free of income tax and National Insurance, usually deductible against corporation tax, and the money grows tax sheltered until you draw it. The standard annual allowance is £60,000, lower for high earners or after flexible pension access, although unused allowance from the previous three tax years may be available. For most people, access is locked away until 55, rising to 57 from 6 April 2028. For a founder whose cash needs are covered, it is usually the best paid thing the company does.
The 2026/27 Numbers You Are Working With
Here are the current rates. They changed on 6 April 2026, so if your mental model still says 8.75% dividends, update it now. Dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher band and 39.35% above that, after a £500 dividend allowance. Income tax runs at 20% up to £50,270, 40% to £125,140 and 45% above. The £12,570 personal allowance tapers away above £100,000 of adjusted net income and is gone by £125,140.
| Pay decision, 2026/27 | The number | What it means |
|---|---|---|
| Personal allowance | £12,570 | Income tax free, tapered away above £100,000 |
| Basic rate band | Up to £50,270 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 apply |
| 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% above £50,270 | Nothing to pay on a £12,570 salary |
| Employer National Insurance | 15% above £5,000 | On a £12,570 salary that is £1,135.50; an eligible employer can offset up to £10,500 of Employment Allowance |
| Corporation tax | 25% over £250,000 profit | 19% at £50,000 or less, marginal relief between |
| Pension annual allowance | £60,000 | Standard annual allowance, tapered for very high earners |
The £50,000 Baseline: Three Ways To Pay Yourself
Make the ladder concrete with the illustrative example: a sports brand on £2.5m of turnover with £300,000 of profit before founder pay, synthetic planning numbers built for this post. Here are three ways the founder can take £50,000 of total pay at 2026/27 rates, and what each leaves in the pocket and costs the company.
| Route, £50,000 gross pay | Founder keeps | Company cash cost | Why |
|---|---|---|---|
| All salary | £39,520 | £56,750 | Income tax of £7,486 plus employee National Insurance of £2,994, and £6,750 of employer National Insurance on top |
| £12,570 salary + £37,430 dividends | £46,030 | £51,136 | The salary uses the personal allowance, the dividends use the basic rate band, and dividend tax comes to £3,970. Employer National Insurance applies only to the salary, £1,135.50 |
| All dividends | £46,030 | £50,000 | Same personal tax, but the £50,000 has to come from profit that has already paid corporation tax |
Read the middle row twice, because it is the answer to the whole post. Salary and dividends put £46,030 in the founder's pocket for £51,136 of company cash. The all salary route nets about £6,510 less and needs about £5,615 more in immediate cash. Standard advice is arithmetic, not ideology: salary to the personal allowance, dividends for the rest of the basic rate band.
One more layer of honesty before you compare rows: these are immediate payment figures, not pre-tax profit costs. At a 25% corporation tax rate, the middle route needs about £63,612 of pre-tax profit and the all-dividend route needs about £66,667, because dividends are paid out of profit that has already suffered corporation tax.
One nuance before you build your spreadsheet. In this example, the £12,570 salary and £1,135.50 employer National Insurance reduce profit from £300,000 to £286,294.50, so the deduction saves corporation tax at 25%. In the marginal relief band, a deduction can save corporation tax at an effective marginal rate of 26.5%. At £50,000 or less, the rate is 19%. On these numbers, pay the salary first, then dividends.
When £50,000 Is Not Enough
Here is where founders start paying the taxman instead of themselves. Want £80,000 as a sports brand founder with £300,000 of profit behind you? The salary stays at £12,570, and once dividends push your total income past £50,270 every extra pound is taxed at 35.75%. Want £120,000? Same story, plus a nasty surprise above £100,000: you lose £1 of personal allowance for every £2 of adjusted net income over the line, and on extra salary in that zone the marginal income tax rate reaches 60% before National Insurance. That is the rate on the next pound, not the rate on everything you earn, but it is the worst parking spot in the tax system. If you are heading through it, go quickly or step around it.
Step around it with pension. Take £1 of company profit as a dividend in the higher rate band and you keep about 48p: 25p of corporation tax, then 35.75% dividend tax on the remaining 75p. Route that £1 into your pension instead and the whole pound goes in, with a corporation tax saving on the contribution and no dividend tax at all.
None of this says you must live on £46,030. If you genuinely need £100,000 of cash, take the dividend and pay the 35.75%. But if you do not need the cash this year because it is going into the Chinese New Year stock order anyway, do not take it anyway. The profit is working for the company, and the company is working for you.
The Rules Of The Road
The structure is half the battle. The paperwork is the other half, because at seven figures the rules stop being optional. Four rules cover almost every mistake I unpick.
Pay the salary through payroll, on time. Run PAYE and send the Full Payment Submission to HMRC on or before payday. I have seen founders transfer themselves £3,000 a month for a year and call it a salary, then discover nobody could show whether the money was earnings, drawings or a loan, because payroll was never run at all. A transfer made without payroll is not automatically a director's loan; its treatment depends on whether it was earnings, a dividend, an expense repayment or money the director must repay. An unexplained transfer can create a director's loan, a PAYE failure or both. Classify and record it when it is paid.
Dividends need profits and a vote. Dividends must come out of distributable profits, the accumulated after tax profits in the accounts, and they need board minutes and a dividend voucher. Pay a dividend when there are no distributable profits and the payment is unlawful, full stop. Even a lawful dividend can be a mistake: pay it out of cash the business needs for the spring stock order and you have started a cash flow problem, with the dividend perfectly legal the whole way down. The £1m revenue trap post explains how brands get profitable and broke together.
Watch the directors' loan account. The cleanest founders still slip here. You take £20,000 for the house deposit in June, promising to tidy it up at year end, and the year end comes and goes. Section 455 is 35.75% for loans made on or after 6 April 2026, so a £70,000 loan made after that date creates a £25,025 charge. A genuine qualifying repayment by the normal payment deadline, nine months and one day after the end of the accounting period, usually means the company does not have to pay the charge, and temporary repayments followed by fresh borrowing can be ignored under the anti-avoidance rules. Repay later and the company can usually still reclaim the tax. For a founder-shareholder with a material interest, there is no general small-loan exemption. Our post on founder finance, share structure and R&D claims walks through the loan trap in detail.
Remember the other shareholders. Dividends are paid per share, so if you have a co-founder, investors or alphabet shares, you cannot simply pay yourself a large dividend and leave everyone else out. Different classes can carry different dividend rights, and you can create them later with the right approvals and filings, but the surgery is cheaper before a fundraising round than after.
Pay Yourself On A Policy, Not On The Bank Balance
The founders who get this right do not decide their pay in the moment. They run a policy: a fixed monthly salary, a dividend each quarter voted at the same meeting where they read the management accounts, sized against a set amount or a set percentage of after tax profit, and a review twice a year. An extra dividend after a strong season is fine; the policy just makes the default deliberate.
A sports brand has a specific reason to be disciplined here: the seasonality of its cash. The Q4 buy is funded in October and November, the season clears through January, the December-quarter VAT bill lands in early February, and the spring range is ordered before the factory shutdown for Chinese New Year. A pay policy that ignores that rhythm will pay you well in the quiet months and starve the business in the loud ones. Pay yourself from the management accounts, profit the business has actually made and can afford to release, and let the seasonal plan tell you the ceiling. The cash flow forecasting post shows how to wire the two together.
And pay yourself enough. The opposite failure is the founder on £20,000 who lives on the company card and calls it frugality. To HMRC it can be a benefit or a loan, to lenders it is income they cannot verify, and to a buyer it is a due diligence problem. If you ever want to sell a sports brand, the exit-ready version of you has a clean payroll, documented dividends and a salary the business can prove it supported. A purchase process will test whether your pay was proper, so it is a cheap thing to fix now. Our piece on exit ready financials lists the rest of what buyers look for.
FAQ
What should a founder of a 7-figure sports brand pay themselves?
A salary of £12,570, which uses the personal allowance and is deductible against corporation tax, then dividends up to £50,270 of total income if profits support it. On £50,000 of total pay that nets about £46,030, and on the full £50,270 about £46,270. Beyond the basic band, dividends are taxed at 35.75%, so pension is usually the smarter home for extra profit.
Is it better to take a salary or dividends?
Both, in that order. Salary up to the £12,570 personal allowance saves corporation tax at 25% in this example and builds your National Insurance record; dividends save National Insurance but come from after tax profit. Above the allowance, dividends win until total income reaches £50,270.
Can I just transfer money from the company when I need it?
As pay, yes: salary through payroll or a dividend voted from distributable profits. Anything else you take is a directors' loan situation, and any balance still outstanding nine months and one day after the year end can create a company charge at 35.75% for loans made on or after 6 April 2026, £25,025 on a £70,000 loan, recoverable if you repay later. A standing transfer with no payroll behind it is the most expensive way to pay yourself there is.
The Bottom Line
Founder pay is not a lifestyle question and it is not a tax puzzle. It is a cash flow decision wearing a tax costume. Pay yourself a salary of £12,570 through real payroll. Take dividends up to £50,270 of total income when profits are genuinely there, voted properly. Route profit you do not need into pension before paying 35.75% tax for the privilege of owning it in cash. Keep the directors' loan account at zero, and pay yourself enough that the business looks real to a lender, a buyer and to you. A seven figure sports brand can afford a founder who is paid properly. It cannot afford a founder who is paid accidentally, especially the week before the Q4 stock order.
If you want your current pay structure checked against the 2026/27 numbers, that is exactly the kind of review we do. We are specialist social commerce accountants, we work with UK sports brands between £1m and £20m, and we see founders every week who are paying themselves wrong. Book a call and we will show you what your founder pay should look like, in numbers.