If you ran your first payroll of 2026/27 in April and found yourself staring at the screen thinking “hang on a minute, that can’t be right”, you’re definitely not alone. Several cumulative shifts in payroll and tax policy have affected how and what owner managers can pay themselves, and there’s a lot of information to digest. Thankfully, experts at Gravitate have distilled the key points into this handy guest post, and they’ve published a more in-depth guide – Paying Yourself Smarter in 2026/27 – exclusively for Sheffield Digital company members. Read on for more.

Over the last few months, we’ve had a similar conversation with dozens of business owners across Sheffield, and the tech sector keeps cropping up. The numbers leaving the business bank account have grown. The numbers landing in your personal account haven’t. Why is this happening?

These changes have shaken things up

There’s no single policy acting as the villain here. What most owner-managers feel is the cumulative weight of a few shifts that have stacked on top of one another.

• Frozen thresholds: The personal allowance (£12,570) and higher-rate threshold (£50,270) haven’t moved since 2021/22 (and won’t until April 2028!) This means every inflationary pay rise now drags more of your income into higher bands.
• The April 2025 employer NI reforms are still biting: Employer’s National Insurance rose to 15%, with the secondary threshold dropping from £9,100 to £5,000. For a single director paying themselves £12,570, that change alone increased employer NI from about £479 to £1,136 a year. It’s now been at that level for a full tax year.
• A reduced £500 dividend allowance: A few years ago, this was £5,000. This is a huge drop in allowance, which means almost every pound of dividend you now take is taxable.
• A tougher tech-sector backdrop: Off-payroll (IR35) reform has been squeezing independent contractors since 2021, and the R&D tax credit overhaul that took effect in April 2024 has cut headline relief for many SME software businesses. 

Most Sheffield Digital business owners will be trading through a limited company. Five years ago, that combination of a modest salary, healthy dividends, a full personal allowance, and light employer NI was visibly tax-efficient. 

However, in 2026/27, that same setup quietly costs more than it used to. And tech business owners are amongst the most exposed because dividends and directors’ salaries are usually the only two avenues for extraction.

The tax traps you must not ignore

Most people are aware of the Income Tax bands and what they mean for their tax deductions. But the UK tax system has a handful of cliff-edges that turn perfectly reasonable pay rises into punitive ones. Four worth watching in 2026/27:

The £50,270 dividend cliff	Your dividend rate jumps from 10.75% to 35.75% the moment total income crosses the higher-rate threshold.
The High-Income Child Benefit Charge	Child Benefit is tapered away between £60,000 and £80,000 of adjusted net income (hitting families with two or three children especially hard).
The 60% effective rate between £100,000 and £125,140	The most expensive slice of income in the UK system, where personal allowance taper combines with higher-rate income tax to create a brutal marginal rate.
Fiscal drag	The slow, almost invisible cost of frozen thresholds compounding year after year.

The good news is you can plan for all of these traps – but they won’t go away on their own!

So what can you actually do?

The default salary/dividend split that worked beautifully in 2022 is rarely the optimal mix for 2026/27, and choosing the right salary level matters far more than it used to.

A £12,570 salary (linked to your personal allowance) isn’t always the cheapest route anymore. 

• For some, particularly business owners, a much lower salary is now closer to optimal.
• For others, such as anyone undertaking qualifying R&D work, the right answer can run in the opposite direction entirely.

Beyond salary and dividends

On top of your salary and dividend package, there is a second layer of remuneration that a lot of owner-managers are leaving on the table. This includes, but isn’t limited to:

• Trivial benefits
• Homeworking allowance
• Electric company cars
• Mobile phone
• Equipment

Individually, these are all small. But combined as part of a remuneration package, you could be looking at roughly £1,150 of tax-free personal value at a company cost of around £935. This is a better effective rate than almost any incremental salary or dividend rise can deliver.

What about pension contributions?

Pensions have quietly become the single biggest lever that most directors aren’t pulling at hard enough. 

In our guide, we illustrate how extracting £20,000 from your company as a bonus leaves a higher-rate director with about £11,600. Taking it as a dividend leaves about £13,250. Whereas, routing it as an employer pension contribution preserves around £17,000 of long-term value. That’s the same £20,000 of company cost, just with very different outcomes!

That gap is wider than it was two years ago, and it grows further the longer thresholds stay frozen.

Get the full smarter remuneration guide for 2026/27

Our guide to Paying Yourself Smarter in 2026/27 is available for free for Sheffield Digital members and includes everything you need to know to start playing your remuneration better in these new and challenging times.

• Three worked salary strategies compared side-by-side, with full corporation tax, NI and dividend tax workings.
• A complete cheat sheet of the income bands that matter most (and what changes at each.)
• The Employment Allowance trap most single-director companies fall straight into.
• An R&D twist that can make a higher salary pay for itself if your time qualifies.
• A simple three-point review rhythm (April / October / February) to keep your remuneration plan from drifting.

Contact us today if you’d like a free copy of the full guide.