Salary vs Dividend Calculator 2026/27
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
Company director? Enter your profit and adjust the salary slider to see how different salary/dividend splits affect your take-home pay. We'll show you the optimal split automatically.
Salary vs Dividend Tax Rates 2026/27
Salary and dividends are taxed very differently. The table below shows why most directors take a small salary and top up with dividends.
| Income Type | Basic Rate Band | Higher Rate Band | NI Payable |
|---|---|---|---|
| Salary | 20% income tax + 8% NI = 28% | 40% income tax + 2% NI = 42% | Yes — employee + employer |
| Dividends | 10.75% dividend tax | 35.75% dividend tax | No NI at all |
The £500 annual dividend allowance means the first £500 of dividend income is always tax-free.
The Optimal Director Salary Strategy
- Step 1 — Salary at £12,570 (personal allowance): zero income tax, zero employee NI, and it's deductible against corporation tax.
- Step 2 — Employer pension contributions up to £60,000: fully deductible, no NI, tax-free growth.
- Step 3 — Dividends up to the basic rate band (£50,270 total income): taxed at 10.75%, no NI.
- Step 4 — Stop before £100,000 total income to avoid the 60% personal allowance taper.
- Consider the Employment Allowance (£10,500) if your company employs others — it may make a slightly higher salary worthwhile.
Who this salary vs dividend calculator is for
- Owner-directors of a UK limited company deciding how much to take as salary and how much as dividends for 2026/27.
- Contractors and consultants who have just incorporated and want to understand why accountants usually recommend a salary of £12,570.
- Directors whose company employs other people and can claim the £10,500 Employment Allowance, which changes the sums.
- Anyone comparing running a business through a company with staying a sole trader, since the calculator shows the total tax on company profit.
How the salary vs dividend calculator works
- 1
Start with the profit available to extract
Enter the company's profit before any director's salary. Everything the director takes has to come out of this figure, including the employer National Insurance the company pays on salary.
- 2
Cost the salary
Salary is a deductible expense, so it reduces corporation tax. The director pays income tax on salary above £12,570 and employee NI at 8% above the same threshold. The company pays employer NI at 15% on salary above £5,000, unless the £10,500 Employment Allowance covers it. A sole director with no other employees cannot claim the allowance.
- 3
Charge corporation tax on what is left
Profit after salary and employer NI is charged at 19% up to £50,000, 25% above £250,000, and a marginal rate of 26.5% on the slice between the two. Dividends can only be paid out of profit that has already borne corporation tax.
- 4
Pay the rest as dividends and tax them
The first £500 of dividends is tax-free. Dividends sit on top of salary in the tax computation and are taxed at 10.75% within the basic rate band (total income up to £50,270), 35.75% in the higher rate band and 39.35% above £125,140. These are the rates set in the November 2025 Budget and in force from 6 April 2026. No National Insurance is charged on dividends.
- 5
Compare the outcomes
The calculator adds up every tax paid by the company and the director for each salary level and shows the take-home pay, the total tax and the effective rate, then highlights the split that leaves the director with the most.
Worked examples
£60,000 profit, sole director, salary of £12,570 and dividends
The standard approach: a salary equal to the Personal Allowance, with the rest taken as dividends. No Employment Allowance because the director is the only employee.
| SalaryNo income tax or employee NI | £12,570 |
| Employer National Insurance(£12,570 − £5,000) × 15% | £1,136 |
| Profit left for corporation tax | £46,295 |
| Corporation tax19% small profits rate | £8,796 |
| Dividend paid | £37,499 |
| Dividend tax(£37,499 − £500) × 10.75% | £3,977 |
| Total tax (company and director) | £13,909 |
| Director's take-home | £46,091 |
Result: The director keeps about 77% of the company's profit.
£60,000 profit taken entirely as salary
The comparison. Because employer NI must be paid on top of the salary, the company can only afford a salary of about £52,826 from £60,000 of profit.
| Salary the company can afford | £52,826 |
| Employer National Insurance | £7,174 |
| Income tax20% to £50,270, then 40% | £8,562 |
| Employee National Insurance | £3,067 |
| Corporation taxNo profit is left in the company | £0 |
| Director's take-home | £41,197 |
Result: All-salary leaves the director £4,894 a year worse off than the salary-plus-dividend split, mainly because of the three lots of National Insurance.
£60,000 profit, salary of only £5,000
Some directors set salary at the £5,000 employer NI threshold to avoid the company paying any NI at all. It is not the better option.
| SalaryNo NI of any kind | £5,000 |
| Corporation tax£55,000 of profit, marginal relief applies | £10,825 |
| Dividend paid | £44,175 |
| Dividend tax | £4,695 |
| Director's take-home | £44,480 |
Result: Take-home is £1,611 lower than with a £12,570 salary. The extra £7,570 of salary costs £1,136 in employer NI but saves £1,438 of corporation tax and replaces dividends taxed at 10.75% with salary taxed at 0%. A £12,570 salary also secures a qualifying year for the State Pension.
Figures use the 2026/27 rates and rules described above, are rounded to the nearest pound, and were last checked against GOV.UK on 25 September 2026.
Assumptions and limitations
- The director has no other income. A second job, rental income, savings interest or a pension changes which band the dividends fall into.
- The profit entered is after all other business costs and before the director's own salary and employer NI.
- Corporation tax uses the standard 19%, marginal relief and 25% bands. Companies with associated companies have lower thresholds.
- Dividends are paid from current-year profit. Retained profit from earlier years can be paid as dividends too, but it has already borne corporation tax at the rate of that year.
- The £500 dividend allowance and the £12,570 Personal Allowance are available in full. Personal Allowance tapering above £100,000 is applied automatically.
- Employer pension contributions, which are often the most tax-efficient extraction of all, are covered separately in the company extraction calculator.
- Rates are for 2026/27. The dividend ordinary and upper rates rose by 2 percentage points on 6 April 2026; the additional rate and the allowance were unchanged.
Official sources
The figures used by this calculator come from the following official pages. Read how we check our figures.
- Tax on dividends — GOV.UK — Dividend allowance and 2026/27 rates
- Change to tax rates for property, savings and dividend income — HMRC technical note — The Budget 2025 rate increase
- Corporation Tax rates and reliefs — GOV.UK — Small profits rate, main rate and marginal relief
- National Insurance rates and categories — GOV.UK — Employee and employer Class 1 rates
- Claim Employment Allowance — GOV.UK — Who can claim the £10,500 allowance
- Running a limited company: taking money out — GOV.UK
Further reading on IncomeFix
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Frequently Asked Questions
Should I take a salary or dividends from my limited company?
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.
What is the optimal director salary for 2026/27?
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.
How are dividends taxed in 2026/27?
The first £500 of dividends is tax-free (dividend allowance). After that, rates for 2026/27 are 10.75% for basic rate taxpayers, 35.75% 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.
Do I pay National Insurance on dividends?
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.
What is the 60% tax trap and how does it affect directors?
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.
What about employer National Insurance on director salaries?
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.