Director Tax Planning
Dividend vs Salary
Calculator
Tax Year
2026/27
Corp Tax
19-25%
Should you take a salary or dividends from your limited company? Enter your company profit and see both options side by side. The calculator compares taking everything as salary against a low salary plus dividends approach, showing you exactly which option puts more money in your pocket after all taxes.
Company Details
£12,570 = Personal Allowance (most common) • £5,000 = Employer NI threshold
Low salary + dividends wins
You keep £0 more per year
A: All as Salary
B: Salary + Dividends
How the dividend vs salary calculator works
This calculator compares two ways of extracting money from your limited company. Scenario A takes everything as salary — your company pays you a gross salary, deducts employer NI, and you pay income tax plus employee NI on the full amount. Scenario B pays you a low salary (typically £12,570 to use your Personal Allowance) and distributes the remaining profit as dividends after corporation tax.
The reason dividends are usually more tax-efficient is the rate difference. Salary attracts 20% income tax plus 8% employee NI plus 15% employer NI. Dividends attract corporation tax (19-25%) plus dividend tax (8.75% at basic rate) — but no National Insurance. For profits under £50,000 where corporation tax is 19%, the combined effective rate on dividends is significantly lower than the combined rate on salary.
The optimal director salary for 2026/27 is usually £12,570 (the Personal Allowance). At this level you pay zero income tax and zero employee NI. Your company pays employer NI of £1,136 but can deduct both the salary and the employer NI as business expenses, reducing the corporation tax bill. Some directors prefer £5,000 to avoid employer NI entirely — try both values in the calculator to see which works better for your profit level.
The calculator accounts for the marginal corporation tax relief band between £50,000 and £250,000 profit, where the effective rate tapers from 19% to 25%. It also includes the £500 dividend allowance and stacks dividend income on top of salary to correctly calculate which dividend tax band applies.
What you need to know about dividends vs salary
Dividends can only come from profits. Unlike salary, you can only pay dividends from retained profits after corporation tax. If your company has no profit, you cannot declare dividends. Paying dividends without sufficient profits is illegal and can create personal tax liabilities. Always check your company accounts before declaring a dividend.
Salary is a business expense; dividends are not. Your director salary reduces your company's taxable profit, which reduces your corporation tax bill. Dividends are paid from post-tax profits. This is why a small salary — enough to use the Personal Allowance — is almost always worth taking, even though dividends carry lower personal tax rates.
NI contributions affect your State Pension. Taking a salary of at least £12,570 ensures you build up qualifying years for the State Pension and maintain your NI record. If you only take dividends, you may miss out on State Pension entitlement unless you pay voluntary Class 2 NI contributions. Use our pension calculator to see how this affects your retirement income.
Consider IR35 if you contract. If HMRC determines that your working arrangement with a client is effectively employment (IR35), you may be required to pay salary-level taxes regardless of your company structure. The dividend strategy only works for genuine business relationships. Our self-employed tax calculator can help you compare the alternatives.
Get professional advice. This calculator gives you a clear comparison, but your optimal strategy depends on factors like pension contributions, other income, and future plans. A qualified accountant can help you set up the most tax-efficient structure for your specific situation.
Frequently asked questions
Should I take a salary or dividends from my ltd company?
For most UK limited company directors, a combination of low salary (around £12,570) plus dividends is more tax-efficient than taking all income as salary. A salary up to the Personal Allowance avoids income tax, and dividends are taxed at lower rates (8.75% basic) than salary (20% income tax plus 8% NI). The optimal split depends on your total profit level.
What is the most tax-efficient salary for a director in 2026/27?
The most common tax-efficient salary for 2026/27 is £12,570 — the Personal Allowance. At this level you pay zero income tax and zero employee NI. Your company pays employer NI of £1,136 but can deduct both the salary and employer NI as a business expense, reducing corporation tax. Some directors choose £5,000 (the employer NI threshold) to avoid employer NI entirely.
How are dividends taxed for company directors?
Dividends have a £500 tax-free allowance for 2026/27. Above that, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate) or 39.35% (additional rate). Dividends stack on top of your salary income, so the rate you pay depends on where your total income falls in the tax bands. Dividends do not attract National Insurance.