Dividend vs Salary Calculator UK 2026 — Directors Tax Planning

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

The Basics

How Each Is Taxed

Payment Type	Corporation Tax	Income Tax	National Insurance
Salary	Deductible expense	20-45%	Employee 8%+ Employer 13.8%
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	£11,380 (incl employer NI)	£10,000
Corporation Tax saved	£2,845	£0
Company cost after CT	£8,535	£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	£6,500	Minimum for State Pension credit
Secondary Threshold	£9,100	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 £480/year
£9,100	No employer NI	Small income tax
£6,500	Builds State Pension, minimal NI	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	£50,000	£0	£16,486	£33,514
Optimal (£12,570 + div)	£12,570	£28,055*	£8,547	£32,078
Low salary (£9,100 + div)	£9,100	£30,675*	£8,264	£32,511

*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	£100,000	£0	£42,660	£57,340
Optimal mix	£12,570	£65,573*	£30,123	£48,020
Keep in company	£12,570	£30,000	£21,098	Retained in company

Keeping money in the company at 25% CT can be better than extracting at 33.75% dividend tax.

Detailed Breakdown: £60,000 Profit

Step	Calculation
Take £12,570 salary
Employer NI	£480
Company cost	£13,050
Your income tax	£0 (within PA)
Your NI	£0 (within threshold)
You receive	£12,570
Remaining profit: £46,950
Corporation Tax (25%)	£11,737
Available for dividends	£35,213
Dividend tax (8.75% after £500)	£3,037
Total you receive	£44,746
Total tax paid	£15,254
Effective tax rate	25.4%

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 £6,500+ earnings

Employment Allowance

If You Qualify	Benefit
Employer NI bill under £5,000	Up to £5,000 offset
Single director companies	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 profit)
Keep in company	25% (CT only)
Salary (basic rate)	~47%
Salary (higher rate)	~55%
Dividend (basic rate)	~31%
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	£24,514	£15,486	38.7%
£12,570 salary + dividends	£29,821	£10,179	25.4%
£9,100 salary + dividends	£30,068	£9,932	24.8%
Minimum salary (£6,500) + dividends	£28,943	£11,057	27.6%

Optimal: Low salary around £9,100-£12,570 plus dividends saves ~13% vs all salary.

Quick Reference

Recommended Approach for Most Directors

Scenario	Recommended Salary	Then
Single director, no employees	£12,570	Dividends
With Employment Allowance	Up to £17,570	Dividends
Want State Pension only	£6,500-9,100	Dividends
Mortgage application	Higher salary	Temporarily

Key Takeaways

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

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