Director Tax Planning
Dividend vs Salary
Calculator
There is no universally optimal salary. Compare £12,570, £6,708 and £5,000 against company costs, corporation-tax marginal relief, other income and your NI record. For a full-year director, salary from the £6,708 Lower Earnings Limit to the £12,570 Primary Threshold can build a State Pension qualifying year at 0% employee NI with correct payroll reporting. £5,000 avoids employer NI but is below the LEL and does not build a qualifying year by itself. Other employment or NI credits may cover the year.
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 estimated take-home under the stated assumptions. A higher modelled result does not identify the best salary for your full circumstances.
Company Details
2026/27 annual thresholds for a full-year director: £6,708 LEL to £12,570 Primary Threshold can build a qualifying year at 0% employee NI, with correct payroll reporting. £5,000 avoids employer NI but is below the LEL and does not build a qualifying year by itself. This model excludes Employment Allowance and other income. A sole-director PSC with no other employees cannot claim the allowance; other income using your Personal Allowance may favour a lower salary.
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 your chosen salary (default £12,570; not a universal recommendation) and distributes the remaining profit as dividends after corporation tax.
Compare combined company and personal taxes rather than headline rates alone. Salary is subject to income tax and employee NI where thresholds are exceeded, plus employer NI at 15% above £5,000. Dividends are paid from profits after corporation tax and then subject to dividend tax, with no NI on the dividends themselves. Which option gives higher take-home depends on the salary chosen and the relevant tax bands.
Neither £12,570 nor £5,000 is universally optimal. With no Employment Allowance, £12,570 salary incurs £1,135.50 employer NI, while £5,000 incurs none but does not build an NI qualifying year by itself. Salary and employer NI can reduce corporation-tax profits, so the benefit depends on the 19% small-profits rate, 25% main rate and marginal relief. A single-director company where the director is the only employee liable for employer NI cannot claim the £10,500 Employment Allowance. The calculator assumes no allowance in either scenario.
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. Salary and employer NI reduce taxable company profit; dividends come from post-tax distributable profits. Other employment income or rental profit may already use your Personal Allowance, so an even lower salary may be appropriate. Student loans, pension contributions, corporation-tax marginal relief and your NI record can change the preferred split; this tool does not model all those circumstances.
NI contributions affect your State Pension. For a director with a full-year annual earnings period in 2026/27, salary from the £6,708 Lower Earnings Limit up to the £12,570 Primary Threshold can build a State Pension qualifying year without paying employee NI: contributions are treated as paid at a 0% employee rate. Payroll must be reported correctly. A £5,000 salary is below the LEL and does not provide a qualifying year by itself; other employment, NI credits or eligible voluntary contributions may cover the year. Check your NI record rather than assuming a gap. Dividends do not generate qualifying earnings.
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?
A salary-plus-dividends approach can give higher take-home than all salary, but there is no universally optimal split. Compare the total company cost, corporation tax (19% small-profits rate, 25% main rate and marginal relief between), employer NI, dividend tax and your need for a State Pension qualifying year. A single-director PSC with no other employees cannot claim Employment Allowance. Other employment income or rental profit may already use your Personal Allowance, making a lower salary appropriate; student loans and personal reliefs can also affect the choice. This calculator excludes other income, student loans and Employment Allowance, so its comparison is illustrative.
What is the most tax-efficient salary for a director in 2026/27?
No single salary is most tax-efficient for every director. £12,570 is the standard Personal Allowance and annual NI Primary Threshold, but income tax depends on your total income and available allowance. Without Employment Allowance, that salary costs the company £1,135.50 employer NI at 15% above £5,000; salary and employer NI can reduce taxable company profit. £5,000 avoids employer NI but is below the £6,708 annual Lower Earnings Limit and does not build a State Pension qualifying year by itself. With a full-year director earnings period and correct payroll reporting, salary from £6,708 to £12,570 can build a qualifying year at 0% employee NI. The choice depends on corporation-tax marginal relief, other income, student loans, your NI record and company structure. A company with one director who is the only employee liable for employer NI cannot claim the £10,500 Employment Allowance; otherwise eligibility must be checked.
How are dividends taxed for company directors?
Dividends have a £500 allowance for 2026/27. Above the allowance, rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional). Dividends sit on top of salary and other taxable income, so the rate depends on your total income; the allowance still uses tax-band space. Dividends do not attract NI and do not build a State Pension qualifying year. The company must have sufficient distributable profits after corporation tax.
Illustrative 2026/27 England/Wales/Northern Ireland comparison: one company, a full 12-month accounting period, no associated companies or Employment Allowance, and all available profit distributed. Other income, pension costs, student loans and personal reliefs are excluded. The selected salary is illustrative, not an optimized recommendation; State Pension qualifying-year eligibility is not calculated. Company profits fund both salary and employer NI.