Director Salary vs Dividend Calculator UK 2026/27
For limited company directors — find the most tax-efficient way to pay yourself
Why split salary and dividends?
Company directors who own shares can choose how to extract money from their business — as salary, dividends, or a mix. Each is taxed differently:
- Salary is a deductible business expense (reduces Corporation Tax) but is subject to Income Tax and both employee and employer National Insurance
- Dividends are paid from post-tax profit (no Corporation Tax deduction) but have no National Insurance and lower Income Tax rates
Worked example
A director wants to extract £50,000 from their company, paying a £12,570 salary (equal to the Personal Allowance) and the remainder as dividends:
| Salary | £12,570.00 |
| Income tax on salary | £0.00 (within Personal Allowance) |
| Employee NI on salary | £0.00 (below primary threshold) |
| Dividends | £37,430.00 |
| Dividend allowance | −£500.00 |
| Taxable dividends | £36,930.00 |
| Dividend tax (10.75% basic rate) | £3,231.00 |
| Total personal tax | £3,231.00 |
| Take-home (salary + dividends − tax) | £46,769.00 |
How the calculation works
- Salary tax: standard Income Tax bands and Employee NI (8% above £12,570) apply to the salary portion
- Dividend tax: the first £500 of dividends is tax-free (Dividend Allowance); above that, 10.75% (basic rate), 35.75% (higher rate), or 39.35% (additional rate) applies depending on your total income
- Corporation Tax saving: salary (plus employer NI) is deducted from company profit before Corporation Tax, effectively giving relief at 19–25%
- Common strategy: many directors pay a salary at or near the Personal Allowance (£12,570) or the NI secondary threshold (£5,000) to minimise NI while still qualifying for state pension credits, then take the rest as dividends
Frequently asked questions
A common approach is to pay a salary of £12,570 (the Personal Allowance) — this uses up your tax-free allowance, may qualify for state pension credits, and keeps National Insurance low, since NI is calculated separately from dividends.
The first £500 of dividends is tax-free. Above that, dividend tax is 10.75% for basic rate taxpayers, 35.75% for higher rate, and 39.35% for additional rate — significantly lower than equivalent salary once combined tax and NI are considered.
Not usually. A small salary (even below the NI threshold) is still a deductible business expense reducing Corporation Tax, and may help you build qualifying years for the State Pension. Pure dividend-only strategies miss out on this.
Yes — dividends are added on top of your other income to determine which tax band they fall into, even though they are taxed at separate dividend rates.
📄 HMRC sources
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Results are estimates based on 2026/27 HMRC rates and are intended as a guide only. They do not constitute financial or tax advice. Always verify with HMRC or a qualified accountant for your specific circumstances.