Tax Planning for Directors Salary vs Dividends Calculator
If you run your own limited company you can pay yourself as salary, as dividends, or as a mix of the two. The split you choose can be worth thousands of pounds a year, and most directors are not on the best one.
This calculator compares all three approaches for the same amount taken out of the company, and shows which leaves you with the most. Updated for the 2026/27 dividend tax rates, which changed on 6 April 2026.
All results from these tools are estimates based on current UK rates and thresholds. Tax rules and rates change, and individual circumstances vary. Please confirm any figure with a qualified adviser at WPC Accountants before relying on it.
If you run your own limited company, you can pay yourself as salary, as dividends, or a mix of both, and the split you choose can make a real difference to how much tax you pay. This tool compares your options and shows which one puts the most money in your pocket, for the same amount withdrawn from the company.
Your figures
Profit before any salary is paid to you.
Anything you already earn elsewhere, so we only count the extra tax this withdrawal causes.
Your comparison appears here
Enter your figures and click Compare my options to see salary, dividends and a mix side by side.
What this calculator works out
Most directors settle on a salary and dividend split once, usually on advice from a friend or something read online, and then never revisit it. Meanwhile the rates move: dividend tax went up in April 2026, employer's National Insurance went up in April 2025 and its threshold fell to £5,000, and Corporation Tax has had three rates since 2023. Put in three figures and the calculator builds three scenarios:
Most directors settle on a salary and dividend split once, usually on advice from a friend or something read online, and then never revisit it. Meanwhile the rates move: dividend tax went up in April 2026, employer's National Insurance went up in April 2025 and its threshold fell to £5,000, and Corporation Tax has had three rates since 2023. Put in three figures and the calculator builds three scenarios:
- Salary only. Everything taken as salary, with Income Tax, employee National Insurance and employer's National Insurance applied.
- Dividends only. Everything taken as dividends out of post-Corporation-Tax profit.
- An optimised mix. Not a rule of thumb: the tool tests a range of salary levels and picks the one that leaves you with most, then shows you that exact split.
It then tells you which of the three wins, and by how much.
How to use it
- 1
Company profit (£)
Your company's profit before your own salary is taken out. If you are not sure, use turnover less all costs other than your pay.
- 2
Desired total income (£)
How much you want to take out of the company this year, however it is paid.
- 3
Other income (£)
Any personal income from outside the company: rent, a second employment, interest. This matters because it uses up your Personal Allowance and your basic rate band before company income is taxed.
Why the split makes a difference
Salary and dividends are taxed on completely different bases, which is the whole reason there is a decision to make. A salary is a company expense, so it reduces the profit that Corporation Tax is charged on, but National Insurance is charged twice: employee National Insurance at 8% on the director's earnings above £12,570, and employer's National Insurance at 15% on everything above just £5,000 a year, a low secondary threshold that is the single biggest change to this calculation in recent years. Dividends carry no National Insurance at all, for you or for the company, which is a large advantage, but a dividend is not a company expense: it comes out of profit that has already had Corporation Tax taken off it, and then you pay dividend tax on top. So dividends are taxed twice at a lower combined rate, and salary is taxed once at a higher one. Which wins depends on your Corporation Tax rate, how much you are taking, and what other income you already have, which is why a calculator is more use than a rule of thumb.
Dividend tax rates and the dividend allowance for 2026/27
These changed on 6 April 2026. The ordinary and upper rates each went up by two percentage points. If you are using a calculator or a piece of advice written before April, it is out of date.
| Band your dividend falls in | Rate from 6 April 2026 | Previous rate |
|---|---|---|
| Dividend allowance, first £500 | 0% | 0% |
| Basic rate band (ordinary rate) | 10.75% | 8.75% |
| Higher rate band (upper rate) | 35.75% | 33.75% |
| Additional rate band | 39.35% | 39.35%, unchanged |
Source: tax on dividends on GOV.UK
The dividend allowance does not simply hand you £500 free: it is taxed at 0% but it still uses up part of your basic rate band.
Corporation Tax and marginal relief
Corporation Tax has three effective rates, and the middle one catches most owner-managed companies by surprise.
| Taxable profit | Rate | Effective rate |
|---|---|---|
| Up to £50,000 | Small profits rate, 19% | 19% |
| £50,001 to £250,000 | Main rate 25% with Marginal Relief | 26.5% on the slice in this band |
| Over £250,000 | Main rate, 25% | 25% |
Source: Corporation Tax rates and Marginal Relief for Corporation Tax on GOV.UK
Profit between £50,000 and £250,000 is effectively taxed at 26.5%, which is higher than the headline main rate of 25%. Marginal Relief tapers the benefit of the small profits rate away, and the taper costs more than the rate it is tapering towards.
National Insurance on a director's salary
| Threshold | Annual figure | What happens there |
|---|---|---|
| Secondary threshold | £5,000 | Employer's National Insurance at 15% starts |
| Lower Earnings Limit | £6,708 | The salary starts counting towards your State Pension record |
| Primary threshold | £12,570 | Employee National Insurance at 8% starts. Also where the Personal Allowance runs out. |
| Upper earnings limit | £50,270 | Employee National Insurance drops to 2% |
Source: HMRC rates and thresholds for employers 2026 to 2027
Why £12,570 is usually the right salary
For a sole director with no other employment income, a salary of £12,570 is normally the sweet spot. At exactly £12,570 you pay no Income Tax, because that is your Personal Allowance, and no employee National Insurance, because that is also the primary threshold. The company does pay employer's National Insurance of £1,135.50 on it, since the secondary threshold is only £5,000, but the whole cost is deductible against Corporation Tax. A single extra pound of salary below the Personal Allowance costs the company about 85p after employer's National Insurance and Corporation Tax relief, and you receive the whole pound, so salary wins. A pound above £12,570 attracts 20% Income Tax and 8% employee National Insurance, so you keep 72p against roughly 75p from a dividend, so dividends win from that point on. That crossover at £12,570 is the whole reason the calculator's optimised mix nearly always lands there for a sole director.
The State Pension trap below £6,708
Some directors set their salary at £5,000 to avoid employer's National Insurance entirely. That saves the company money, but it costs something that does not show up in any calculator: a qualifying year towards your State Pension. A salary only counts towards your National Insurance record if it is at or above the Lower Earnings Limit, which is £6,708 for 2026/27. You normally need 35 qualifying years for a full new State Pension, so a missed year is not trivial.
| Salary | Employer's NI | Your tax and NI | Counts for State Pension? |
|---|---|---|---|
| £5,000 | £0 | £0 | No, below the £6,708 limit |
| £6,708 | £256.20 | £0 | Yes, just |
| £12,570 | £1,135.50 | £0 | Yes |
Saving £1,135.50 of company money and losing a year of State Pension entitlement is rarely a good trade. If the calculator suggests a salary below £6,708, treat that as a prompt to talk to us rather than an instruction.
Worked example: £70,000 of company profit, all salary
A sole director and shareholder. The company expects £70,000 of profit before the director’s salary. The director wants to take £50,000 out of the company this year, and already has £10,000 of other personal income from rent.
| Line | Amount | Note |
|---|---|---|
| Salary | £50,000.00 | Taken from the company |
| Employer's National Insurance | £6,750.00 | 15% above £5,000 |
| Company profit left after both | £13,250.00 | £70,000 less £56,750 |
| Corporation Tax at 19% | £2,517.50 | Under the £50,000 small profits limit |
| Retained in the company | £10,732.50 | |
| Your Income Tax on £60,000 total income | £11,432.00 | £37,700 at 20%, £9,730 at 40% |
| Your employee National Insurance | £2,994.40 | £37,430 at 8% |
| Your net income, all sources | £45,573.60 |
Worked example: £12,570 salary plus dividends
Same director, same £50,000 desired income: £12,570 as salary and £37,430 as dividends.
| Line | Amount | Note |
|---|---|---|
| Salary | £12,570.00 | At the Personal Allowance |
| Employer's National Insurance | £1,135.50 | 15% on £7,570 |
| Company profit left after both | £56,294.50 | |
| Corporation Tax with Marginal Relief | £11,168.04 | Profit sits in the £50,000 to £250,000 band |
| Post-tax profit available for dividends | £45,126.46 | Comfortably covers the £37,430 dividend |
| Dividend paid | £37,430.00 | |
| Retained in the company | £7,696.46 | |
| Your Income Tax on non-dividend income | £2,000.00 | £10,000 above the Personal Allowance at 20% |
| Your employee National Insurance | £0.00 | Salary is at the primary threshold |
| Your dividend tax | £6,402.48 | £500 at 0%, £27,200 at 10.75%, £9,730 at 35.75% |
| Your net income, all sources | £51,597.52 |
The mix leaves the director £6,023.92 a year better off personally than salary alone. Note how much of that gap is National Insurance rather than tax: the all-salary option pays £6,750 of employer’s National Insurance and £2,994.40 of employee National Insurance, against £1,135.50 and nothing for the mix. One difference worth knowing: this calculator compares personal take-home under each option and deliberately leaves employer’s National Insurance out of that comparison, because it answers "what reaches me" rather than "what does this cost the company". The figures above work through both sides, because that is where a lot of the real difference sits.
What this calculator does not check
The maths is only half of a dividend decision. These are the parts that need a person.
The maths is only half of a dividend decision. These are the parts that need a person.
- Whether you have the profit to pay the dividend. A dividend can only be paid out of distributable reserves. Paying one when the company does not have them makes it an unlawful dividend, which can be reclaimed from you personally and can be treated as a director’s loan.
- The paperwork. Dividends need a board minute and a dividend voucher for each payment. Without them, HMRC can argue the money was salary or a loan, and tax it accordingly.
- Other shareholders. Dividends follow shareholdings, so you cannot pay a dividend to yourself alone without the right share structure in place first.
- Your director’s loan account. Money already drawn changes the answer, and an overdrawn loan account at the year end brings its own tax charge.
- Pension contributions. Employer pension contributions are usually the most tax-efficient way of all to extract value, and this calculator does not model them.
- Scottish taxpayers. Scottish Income Tax rates apply to salary but not to dividends, which changes the crossover point.
- The Employment Allowance. A company where the only employee is a single director cannot claim it.
- Sponsored directors. If you hold a visa that requires you to be paid a minimum salary, you cannot drop your salary to £12,570 to save tax. Our group company Work Permit Cloud advises on self-sponsorship in the UK and on Skilled Worker visa salary requirements.
This comparison assumes standard rates for the 2026/27 tax year, one director and shareholder, no other reliefs and no pension contributions. It is a starting point, not a substitute for a personalised review. Please contact WPC Accountants for a figure specific to your situation before you change how you pay yourself.
Frequently asked questions
- For most sole directors, a mix beats either on its own. A salary at the £12,570 Personal Allowance uses up the tax-free band, keeps your State Pension record intact and is deductible against Corporation Tax, and the rest is taken as dividends because they carry no National Insurance. On £50,000 taken out of a company with £70,000 of profit, that mix leaves a director around £6,000 a year better off than salary alone.
- The first £500 of dividends is covered by the dividend allowance and taxed at 0%. Above that, dividends falling in the basic rate band are taxed at 10.75%, in the higher rate band at 35.75%, and in the additional rate band at 39.35%. The ordinary and upper rates each rose by two percentage points on 6 April 2026, up from 8.75% and 33.75%.
- Strictly, £500 a year through the dividend allowance. In practice a director taking a £12,570 salary has already used their Personal Allowance on the salary, so dividends start being taxed almost straight away, at 10.75% until the basic rate band runs out at £50,270 of total income. If you have no other income at all, unused Personal Allowance can cover dividends too.
- £12,570 for most sole directors. At that level you pay no Income Tax and no employee National Insurance, you earn a qualifying year towards the State Pension, and the salary and the £1,135.50 of employer’s National Insurance on it are both deductible against Corporation Tax. If your company has a second employee and can claim the Employment Allowance, a higher salary may work better.
- The secondary threshold, the point at which employers start paying National Insurance, is £5,000 a year for 2026/27, and the rate is 15%. It is far lower than the £12,570 at which you start paying employee National Insurance. It means almost any salary a company pays carries an employer’s National Insurance cost, which is why it has to be included in any honest salary versus dividend comparison.
- No. A company whose only employee paid above the secondary threshold is a single director cannot claim the Employment Allowance. This catches a lot of people out, because the allowance is worth up to £10,500 a year. If the company has at least one other employee earning above the threshold, it can usually claim.
- Profits up to £50,000 are taxed at 19% and profits over £250,000 at 25%. In between, the main rate applies with Marginal Relief tapering the benefit away, which produces an effective rate of 26.5% on the slice of profit inside that band. So a company in the middle band pays a higher effective rate on that slice than a much larger company pays overall.
- Yes, if your dividend income is above the £500 allowance you will normally need to report it through Self Assessment and pay the tax by 31 January following the end of the tax year. Dividend tax is not deducted at source the way PAYE is, so the money needs setting aside rather than spending.
- It is an unlawful dividend. Dividends can only come from distributable reserves, meaning accumulated profits after tax. If there are not enough, the payment can be reclaimed from you personally, and HMRC may treat it as a director’s loan, which brings its own tax charge if it is not repaid within nine months of the year end.
- Yes. Scottish Income Tax rates apply to salary, and Scotland has six bands rather than three with a higher rate starting at £43,663. Dividend tax rates are set UK-wide and do not change. That combination moves the crossover point and generally makes dividends relatively more attractive for a Scottish taxpayer.
- Very possibly. An employer pension contribution from the company is normally deductible against Corporation Tax, carries no National Insurance and is not taxed on you when it is paid in, which makes it more efficient than either salary or dividends for money you do not need right now. This calculator does not model it, and it is one of the main reasons a real review beats a calculator.
- The calculator is free and there is no obligation. If you ask us to email the comparison, we will use your name, email and phone number to send it and to follow up if you would like us to. We will not pass your details to anyone else.