Salary vs Dividend Calculator 2026/27

The most tax-efficient approach for most directors is to take a small salary at the personal allowance (£12,570) and the rest as dividends. This minimises National Insurance while still getting a corporation tax deduction on the salary and protecting your State Pension entitlement.

The optimal salary is typically £12,570, matching the personal allowance. At this level you pay zero income tax and zero employee NI. The salary is deductible for the company, saving corporation tax. If your company qualifies for the Employment Allowance (£10,500), a slightly higher salary may be optimal.

The first £500 of dividends is tax-free (dividend allowance). After that, rates are 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate. Crucially, no National Insurance is payable on dividends, making them more tax-efficient than salary above the personal allowance.

No. Dividends are not subject to National Insurance — neither employee NI nor employer NI. This is the main reason dividends are more tax-efficient than salary for company directors above the personal allowance threshold.

If your total income (salary + dividends) falls between £100,000 and £125,140, your personal allowance is tapered away at £1 for every £2 above £100k. This creates an effective marginal tax rate of around 60%. Directors should plan their extraction to avoid this zone.

Employer NI is charged at 15% on salary above £5,000. However, if your company qualifies for the Employment Allowance, the first £10,500 of employer NI is offset. For a salary of £12,570, employer NI would be £1,135.50 before the allowance — fully covered if eligible.