Is it better to take salary or dividends UK?

Usually a mix is best. Take salary up to the NI threshold (£12,570) to build State Pension entitlement, then dividends above that. Dividends avoid National Insurance entirely. The optimal split depends on your total income and whether you have other income sources.

How much salary should a director take 2026?

The most common strategies: £12,570 (Personal Allowance threshold — maximises pension credits, no income tax), or a lower salary around the £5,000 Secondary Threshold or £6,708 Lower Earnings Limit to minimise employer NI (the Secondary Threshold was cut from £9,100 to £5,000 from April 2025). Above this, dividends are usually more tax-efficient.

Do I pay National Insurance on dividends UK?

No. Dividends are not subject to National Insurance, which is why they're tax-efficient for directors. You only pay dividend tax at 8.75% (basic), 33.75% (higher), or 39.35% (additional rate) — after the £500 dividend allowance.

Dividend vs Salary Calculator UK 2026 — Directors Tax Planning | PocketWise

As a company director, you control how you extract money from your business. Getting the salary/dividend split right can save thousands in tax.

For the wider cluster covering dividend-tax rates, the allowance and director-planning context, use the main Dividend Tax hub.

Read more: See our Take Home Pay guide for a complete overview of this topic.

The Basics

How Each Is Taxed

Payment Type	Corporation Tax	Income Tax	National Insurance
Salary	Deductible expense	20-45%	Employee 8%+ Employer 15%
Dividends	Paid from post-CT profits	8.75-39.35%	None

Why Dividends Usually Win

On £10,000 Payment	Via Salary	Via Dividend
Gross cost to company	£11,500 (incl employer NI)	£10,000
Corporation Tax saved	£2,875	£0
Company cost after CT	£8,625	£10,000
Income tax	£2,000 (20%)	£831 (8.75%)
Employee NI	£800 (8%)	£0
You receive	£7,200	£9,169

Assumes basic rate taxpayer, CT at 25%.

Optimal Salary Levels

Key Thresholds 2026/27

Threshold	Amount	Significance
Lower Earnings Limit	£6,708	Minimum for State Pension credit
Secondary Threshold	£5,000	Employer NI starts
Primary Threshold	£12,570	Employee NI starts
Personal Allowance	£12,570	Income tax starts

Common Salary Strategies

Salary Level	Pros	Cons
£12,570	Uses full Personal Allowance	Employer NI ~£1,136/year
£9,100	Modest income tax gap	Employer NI ~£615/year (threshold is now £5,000)
£6,708 (LEL)	Builds State Pension, low employer NI (~£256/year)	Leaves PA unused
Higher	Allowable pension contributions	Inefficient above PA

Salary + Dividend Calculator

Basic Rate Taxpayer (Under £50,270)

Company Profit Available: £50,000

Strategy	Salary	Dividends	Total Tax	You Receive
All salary	£44,130	£0	£14,707	£35,293
Optimal (£12,570 + div)	£12,570	£29,398*	£10,561	£39,439
Low salary (£9,100 + div)	£9,100	£32,631*	£10,777	£39,223

*After corporation tax on remaining profit.

Higher Rate Taxpayer (£50,270-£125,140)

Company Profit Available: £100,000

Strategy	Salary	Dividends	Total Tax	You Receive
All salary	£87,609	£0	£38,629	£61,371
Optimal mix	£12,570	£67,176*	£33,457	£66,543
Keep in company	£12,570	£30,000	£22,835	£39,989 (+£37,176 retained)

Keeping money in the company at an effective ~22% corporation tax rate (marginal relief applies between £50,000 and £250,000 profit) can be better than extracting it all at 33.75% dividend tax.

Detailed Breakdown: £60,000 Profit

Step	Calculation
Take £12,570 salary
Employer NI	£1,136
Company cost	£13,706
Your income tax	£0 (within PA)
Your NI	£0 (within threshold)
You receive	£12,570
Remaining profit: £46,294
Corporation Tax (19% small profits rate)	£8,796
Available for dividends	£37,498
Dividend tax (8.75% after £500)	£3,237
Total you receive	£46,831
Total tax paid	£13,169
Effective tax rate	22.0%

When to Take More Salary

Salary Makes Sense When

Situation	Why
Making pension contributions	Need earnings for relief
Below Personal Allowance	Use it up
Mortgage application	Higher “employed income”
Employment Allowance available	Offsets employer NI
Building State Pension	Need £6,708+ earnings

Employment Allowance

If You Qualify	Benefit
Most employers (any size — the £100,000 prior-year cap was removed in April 2025)	Up to £10,500 offset
Single director companies (director is the only employee)	NOT eligible
With employees	Usually eligible

If you have employees, you may be able to pay yourself more salary using Employment Allowance.

Dividend Allowance

2026/27 Rules

Allowance	£500
Tax on first £500 dividends	£0
Above £500 (basic rate)	8.75%
Above £500 (higher rate)	33.75%
Above £500 (additional rate)	39.35%

Impact of Reduced Allowance

Year	Dividend Allowance
2022/23	£2,000
2023/24	£1,000
2024/25+	£500

Lower allowance means dividends slightly less favourable — but still better than salary above threshold.

Corporation Tax Consideration

When to Keep Money in Company

Scenario	Recommendation
Would be higher rate on dividends	Consider retaining
Future investment needed	Retain
Building company value to sell	Retain
Need income now	Extract (accept tax)

Effective Rates Comparison

Extraction Method	Total Tax (on £100 of marginal profit/pay)
Keep in company	25% (CT only)
Salary (basic rate)	~37%
Salary (higher rate)	~50%
Dividend (basic rate)	~32%
Dividend (higher rate)	~50%

Special Situations

The £100,000 Trap

Issue	Above £100,000 income
Personal Allowance withdrawn	£1 per £2 over £100k
Effective rate	60% between £100k-£125k
Solution	Keep income below £100k or well above £125k

Strategies:

Pension contributions reduce income
Keep dividends below threshold
Spread income over years

Spouse Dividends

If Your Spouse	Consider
Basic rate taxpayer	Dividends taxed at 8.75%
Non-taxpayer	Dividends within £12,570 PA
Actual shareholder	Must have genuine shares
Does nothing	HMRC may challenge

Warning: “Arctic Systems” case — spouse must have genuine entitlement.

IR35 and Contractors

If Inside IR35	Effect
Deemed employment	Can’t use dividend strategy
Tax at source	PAYE applied
Limited company inefficient	Consider umbrella

Year-End Planning

Before April 5

Action	Why
Review dividend taken	Maximise lower rate bands
Pension contributions	Reduce taxable income
Check spouse’s position	Use their allowances
Consider timing	Next year’s rules may differ

Dividend Timing

Situation	Strategy
Expect lower income next year	Defer dividend
Expect higher income next year	Take dividend now
Near band threshold	Split across years

Comparison Table: £40,000 Company Profit

Option	You Receive	Tax Paid	% Lost to Tax
All Salary	£29,033	£10,967	27.4%
£12,570 salary + dividends	£32,048	£7,952	19.9%
£9,100 salary + dividends	£31,832	£8,168	20.4%
Minimum salary (£6,708 LEL) + dividends	£31,682	£8,318	20.8%

Optimal: A salary of £12,570 plus dividends now saves around 7-8% of company profit vs all-salary extraction. The old advice to use a £9,100 salary is now less effective since employer NI applies above the £5,000 Secondary Threshold.

Quick Reference

Recommended Approach for Most Directors

Scenario	Recommended Salary	Then
Single director, no employees	£12,570	Dividends
With Employment Allowance	Higher (employer NI offset up to £10,500)	Dividends
Want State Pension only	£6,708-9,100	Dividends
Mortgage application	Higher salary	Temporarily

Key Takeaways

Salary to £12,570 — uses Personal Allowance, builds State Pension
Dividends above — avoid NI, lower tax rates
No NI on dividends — the main advantage
Watch £100k trap — 60% effective rate
Consider retaining — 25% CT vs extracting at higher rates
Get advice — complex situations need an accountant

For related content, see our take-home pay calculator, corporation tax guide, and IR35 guide.

Dividend vs Salary Calculator UK 2026 — Directors Tax Planning

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