Salary vs Dividend Calculator — UK Director Pay
Salary vs dividend calculator
For owner-managed UK limited companies. Compare what you actually take home if you pay yourself in salary, dividends, or a mix. Uses 2026/27 rates including 15% employer NIC, marginal-relief Corporation Tax, and the £500 dividend allowance.
Compare salary vs dividend
2026/27: Personal Allowance £12,570; basic rate band ends £50,270; higher rate ends £125,140. Dividend allowance £500. Dividend tax 8.75% / 33.75% / 39.35%. Employee NI 8% / 2%. Employer NI 15% above £5,000. CT 19%/25% with marginal relief between £50k–£250k profits (effective ~26.5%).
How the calculation works
Most owner-managers of profitable limited companies are better off taking a small salary up to the Personal Allowance (or the secondary NIC threshold), then taking the rest as dividends. Salary is a deductible expense for the company; dividends are paid out of after-tax profit. Both you and the company pay tax on different things, and the optimum mix depends on profit levels and employment status.
- Salary £12,570: uses the Personal Allowance and a year’s NI credit. Above £5,000 you trigger employer NIC at 15%, so on a salary at PA the company pays around £1,135 in employer NIC.
- Salary £50,270: keeps you in the basic-rate band, but you (and your company) pay employee and employer NI on the £37,700 above the threshold — tax on tax.
- Dividends: no NI, but they come out of after-CT profit and have their own dividend tax on top of any salary.
The April 2025 increase to employer NI (from 13.8% to 15%) and the cut in the secondary threshold (from £9,100 to £5,000) made salary-heavy strategies materially less efficient. For most directors of small profitable companies, a £12,570 salary plus dividends remains the right answer in 2026/27 — but always model it against your actual numbers.
Frequently asked questions
Why does my salary affect Corporation Tax?
Salary and employer NIC are deductible expenses for the company, so they reduce the profit liable to Corporation Tax. Dividends are not — they come out of after-tax profit. That is why a small salary plus dividend usually beats a large salary alone.
What is Employment Allowance and why does it matter?
Employment Allowance lets eligible employers reduce their employer NIC bill by up to £10,500 a year. Single-director companies with no other employees are excluded — most one-person Ltds cannot claim it.
What about pension contributions?
Employer pension contributions are usually the most tax-efficient way to extract value: deductible for CT, no employer NI, no employee NI, no income tax (within annual allowance). Worth modelling alongside salary and dividend.
What if my profit is over £250k?
You hit the 25% main rate of Corporation Tax. Between £50k and £250k you pay marginal relief — the effective rate on profits in that band is around 26.5%. The optimum salary/dividend split shifts as the company’s effective CT rate goes up.
Should I leave profit in the company?
If you do not need the cash personally, leaving profit in the company can be tax-efficient — you only pay CT, not personal tax. But that profit will eventually need extracting (sale, liquidation under MVL, ongoing dividends), so plan the exit alongside the day-to-day.
Want this modelled with your actual numbers?
The calculator uses the standard rules. Once we factor in pension, Employment Allowance, partner-shareholders, BADR planning and the right CT marginal-rate point, the optimum split is often slightly different. We do this kind of review for every owner-managed client every year.