Why is £12,570 the standard director salary?

It matches the UK Personal Allowance, so no Income Tax is due on it. The Primary Threshold for employee NI is also £12,570 - so zero employee NI. The only cost is a small employer NI charge on the £7,570 above the £5,000 Secondary Threshold, at 15%, giving £1,135.50 - and if your company qualifies for Employment Allowance (£10,500 in 2026/27) that vanishes entirely.

Is salary or dividend more tax-efficient at higher levels?

Dividends usually win above the Personal Allowance because they avoid both employee NI (8%) and employer NI (15%). Salary at higher rates costs 40% Income Tax plus 2% employee NI plus 15% employer NI - around 53% combined - vs higher-rate dividends at 33.75%. The trade-off shifts in additional-rate territory (above £125,140) where the gap narrows but dividends still win on a like-for-like extraction.

Should I keep some profits in the company instead?

If you do not need the cash personally, retaining profits inside the company defers personal tax indefinitely - you pay Corporation Tax once (19% small profits / up to 26.5% marginal) and the remainder stays in the company. You can then take it later as dividends in a lower-income year, use it to fund a director pension contribution (corporation-tax-deductible and outside your estate), or qualify for Business Asset Disposal Relief on company wind-up.

What happens in the £100k-£125k Personal Allowance taper zone?

Total taxable income above £100,000 reduces your Personal Allowance by £1 for every £2, fully extinguished by £125,140. If you cross £100k with salary, you can claw back PA by sacrificing salary into pension. If you cross with dividends, you can declare fewer this year and roll the rest to a future tax year. The marginal effective rate in the taper zone is around 60% on the salary path and 53.75% on the dividend path - both worth avoiding.

Does my company need to pay Employer NI on the £12,570 director salary?

Yes - but only on the slice above the £5,000 Secondary Threshold. In 2026/27 the rate is 15%, so the employer NI on a £12,570 salary is £1,135.50. Most single-director companies cannot claim Employment Allowance (since 2016 the director must not be the only employee for EA), so this £1,135.50 typically lands. The salary plus employer NI are both deductible expenses for Corporation Tax, recovering 19% in CT savings on the slice below £50k profit.

What about pension contributions from the company?

Employer pension contributions from a limited company are deductible against Corporation Tax (saving 19%-26.5%-25% depending on the band), with no Income Tax, no employee NI, and no employer NI on either side. For most director-shareholders the most tax-efficient extraction route is: £12,570 salary + £500 dividend allowance + £60,000 employer pension (the Annual Allowance), with anything above taken as dividends. Always check the wholly-and-exclusively test for HMRC.

How accurate is this calculator?

We model the standard six-tax stack (Corporation Tax, Employer NI, Employee NI, Income Tax, Dividend Tax, plus Employment Allowance if elected) using HMRC published rates for the selected year. We do not model: the Director's Loan Account, IR35 deemed payments, Business Asset Disposal Relief on company wind-up, salary sacrifice into pension, payrolled BIK, or PSC-style anti-avoidance rules. Treat the result as a planning estimate - confirm specifics with a chartered accountant.

UK Salary vs Dividend Calculator 2026/27

For UK director-shareholders extracting from a limited company, find the mix of salary + dividends that maximises net take-home. Stacks Corporation Tax, Employer NI, Employee NI, Income Tax and Dividend Tax. Default mix uses a £12,570 director salary (Personal Allowance) with the balance as dividends. Verified against gov.uk: dividend tax and corporation tax rates.

Director salary	£12,570
Dividends declared	£37,430
Corporation Tax	−£13,818
Employer NI	−£1,136
Employee NI	−£0
Income Tax	−£0
Dividend Tax	−£3,231
Net to shareholder	£46,769

Worked scenarios (2026/27)

All scenarios assume the standard tax-efficient structure: £12,570 director salary, balance as dividends. Net to shareholder is after every layer of tax (Corporation Tax, Employer NI, Employee NI, Income Tax, Dividend Tax).

£30,000 extraction

£28,519

Salary £12,570 + dividends £17,430

Combined tax rate 19.0%
See full breakdown →
£50,000 extraction

£46,769

Salary £12,570 + dividends £37,430

Combined tax rate 22.7%
See full breakdown →
£100,000 extraction

£80,086

Salary £12,570 + dividends £87,430

Combined tax rate 35.0%
See full breakdown →
£150,000 extraction

£112,551

Salary £12,570 + dividends £137,430

Combined tax rate 39.5%
See full breakdown →
£200,000 extraction

£142,876

Salary £12,570 + dividends £187,430

Combined tax rate 42.1%
See full breakdown →

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How the salary vs dividend split works

If you own a UK limited company and you also work in it as a director, you choose how to pay yourself: through a PAYE salary, through dividends on your shares, or — almost always — through a combination of the two. The mix matters because every pound of profit that reaches your personal bank account passes through a stack of taxes, and the order in which those taxes apply changes how much is left.

Here is the full stack for 2026/27:

Corporation Tax sits at the top. UK profits up to £50,000 pay 19% (the small profits rate). Profits between £50,000 and £250,000 pay an effective 26.5% marginal rate (the small-profits rate phases out via marginal relief). Profits above £250,000 pay the 25% main rate.
Employer Class 1 NIC is a payroll tax on salary above the Secondary Threshold (£5,000 from April 2025 — sharply down from £9,100). The rate is 15% from 6 April 2025, up from 13.8%.
Employee Class 1 NIC is the worker-side NI. It charges 8% on salary between £12,570 and £50,270, and 2% above £50,270.
Income Tax on salary follows the usual UK bands: 0% to £12,570 (Personal Allowance), 20% to £50,270, 40% to £125,140, 45% above. The Personal Allowance tapers by £1 for every £2 of income above £100,000, fully extinguished by £125,140 — the so-called 60% tax trap.
Dividend Tax is paid on dividends declared from the company’s post-Corporation-Tax profit. The first £500 is tax-free (the dividend allowance). Above that, the rate depends on which band the dividends fall into when stacked on top of any other income: 8.75% basic, 33.75% higher, 39.35% additional. Scottish residents pay UK-wide dividend rates (dividends are not devolved).

Salary is a deductible business expense; dividends are not. A pound of salary reduces Corporation Tax by the marginal CT rate (19%, 26.5%, or 25%). A pound of dividend does not. That is the single biggest reason dividends are not always cheaper than salary — and why the optimum mix shifts as profits scale.

Why £12,570 salary is the standard answer

A director salary of exactly £12,570 — equal to the Personal Allowance and to the NI Primary Threshold — triggers:

£0 Income Tax (uses the full PA)
£0 employee NI (sits at the PT)
£1,135.50 employer NI ((£12,570 - £5,000) × 15%)
A Corporation Tax saving of (£12,570 + £1,135.50) × 19% = £2,604.05 on the small-profits band

Net cost to the company: £12,570 salary + £1,135.50 ER NI - £2,604.05 CT saving = £11,101.45. The director receives £12,570 in their personal bank account with zero personal tax. Effective conversion: £1.13 of company profit becomes £1.00 of net director pay. No other extraction route gets close.

The £1,135.50 employer NI disappears entirely if your company qualifies for the £10,500 Employment Allowance — but most one-person companies do not, because HMRC removed the allowance from single-director PSCs in 2016 unless there is a second employee on the payroll. If you employ your spouse, a part-time bookkeeper, or any other non-director on PAYE wages, you become eligible.

Above £12,570, salary stops being cheap. Each extra £1 of salary incurs 20% Income Tax + 8% employee NI + 15% employer NI = 43% combined, partly offset by 19% CT relief on the salary + employer NI deduction. The same £1 of dividend in the basic-rate band incurs 19% CT (because it must come from post-CT profit) + 8.75% dividend tax = ~26%. Dividends win by a comfortable margin.

Worked examples for 2026/27

£30,000 extraction

Salary £12,570, dividends £17,430. Personal taxes: £1,517 dividend tax (£17,430 minus £500 allowance, all at 8.75%). Net to shareholder £28,483. Including company-side costs (employer NI £1,135.50 plus Corporation Tax of ~£3,148 on the remaining profit), the all-in tax take is around 26% of the company profit consumed. Dividends fall entirely in the basic-rate band.

£50,000 extraction

Salary £12,570, dividends £37,430. Personal taxes: £3,232 dividend tax (£500 allowance, £36,930 at 8.75%). Net to shareholder £46,768. Still entirely basic-rate dividends. This is the sweet spot for many director-owners running consultancies or service businesses below the VAT threshold.

£100,000 extraction

Salary £12,570, dividends £87,430. The dividends now straddle the higher-rate threshold: £37,700 at 8.75% (£3,299) + £49,230 at 33.75% (£16,615) = £19,914 dividend tax. Net to shareholder £80,086. The effective marginal rate has jumped — every extra pound of dividend now costs 33.75% personally, on top of the 19% to 26.5% Corporation Tax already paid by the company.

£125,000 extraction

Salary £12,570, dividends £112,430. The dividends now extend into the PA taper zone. Crucially, because the salary is only £12,570, taxable income from salary is zero, so the PA taper bites on the dividend income. The marginal effective rate inside £100,000 to £125,140 reaches 53.75% (33.75% dividend tax + 20% PA loss equivalent). Many director-shareholders deliberately cap dividends at the £100,000 threshold and roll the surplus into a director pension contribution to sidestep this zone.

£200,000 extraction

Salary £12,570, dividends £187,430. The dividends now straddle three bands: basic, higher, and additional. Top-slice dividend tax at 39.35%. The company is also paying Corporation Tax at 26.5% marginal on the profit needed to fund this extraction. The combined effective tax rate on the company’s pre-tax profit is around 55%. Consider whether a director pension contribution (up to £60,000 annual allowance, plus carry-forward) and Business Asset Disposal Relief at company wind-up could materially improve the all-in result over a multi-year horizon.

When the answer is not £12,570 + dividends

Three scenarios reverse the default:

You have no Corporation Tax to deduct against. If the company makes a loss (or has heavy carried-forward losses), salary stops being CT- deductible in any useful sense and dividends become impossible (you cannot pay dividends from losses). Take whatever salary the cash position will support.

You need NI credits for State Pension. A salary of at least the Lower Earnings Limit (£6,500 in 2026/27) earns a qualifying year for the State Pension. A pure-dividend strategy with zero salary does not. Most directors take at least the LEL — and usually the £12,570 PA — for this reason.

You are using salary sacrifice into a workplace pension. A higher salary unlocks employer pension contributions that are both CT-deductible and outside your personal taxable income. Salary sacrifice is the most tax-efficient extraction route available to director-shareholders.

What we do not model

The Director’s Loan Account (DLA) and the s455 charge on overdrawn loans. If you borrow from the company and do not repay within nine months, the company pays a 33.75% s455 charge until repayment.
Business Asset Disposal Relief (BADR) on winding up the company — a 10% CGT rate on lifetime gains up to £1m, often a major part of the long-term plan for owner-managers.
IR35 / deemed payment rules for off-payroll engagements with medium and large clients. Use the dedicated IR35 Deemed Payment calculator.
Salary sacrifice into pension, which often beats both salary and dividend extraction above the £12,570 baseline.
Payrolled benefits in kind (BIK), which would attract employer NI and would change the salary vs dividend trade-off.

Contractor (IR35) Calculator - inside vs outside IR35 take-home with the day-rate frame.
IR35 Deemed Payment - Chapter 8 ITEPA gross-up where the engager applies PAYE.
Dividend Tax Calculator - standalone dividend tax stacked on other income.
Corporation Tax Calculator - 19% / 26.5% / 25% with marginal relief.
Pension Annual Allowance - £60k limit and high-income taper.
Sole Trader vs Limited Company - which structure to use in the first place.
Director’s Loan Account guide - s455 trap and how to use the DLA cleanly.

Frequently asked questions

Why is £12,570 the standard director salary?: It matches the UK Personal Allowance, so no Income Tax is due on it. The Primary Threshold for employee NI is also £12,570 - so zero employee NI. The only cost is a small employer NI charge on the £7,570 above the £5,000 Secondary Threshold, at 15%, giving £1,135.50 - and if your company qualifies for Employment Allowance (£10,500 in 2026/27) that vanishes entirely.
Is salary or dividend more tax-efficient at higher levels?: Dividends usually win above the Personal Allowance because they avoid both employee NI (8%) and employer NI (15%). Salary at higher rates costs 40% Income Tax plus 2% employee NI plus 15% employer NI - around 53% combined - vs higher-rate dividends at 33.75%. The trade-off shifts in additional-rate territory (above £125,140) where the gap narrows but dividends still win on a like-for-like extraction.
Should I keep some profits in the company instead?: If you do not need the cash personally, retaining profits inside the company defers personal tax indefinitely - you pay Corporation Tax once (19% small profits / up to 26.5% marginal) and the remainder stays in the company. You can then take it later as dividends in a lower-income year, use it to fund a director pension contribution (corporation-tax-deductible and outside your estate), or qualify for Business Asset Disposal Relief on company wind-up.
What happens in the £100k-£125k Personal Allowance taper zone?: Total taxable income above £100,000 reduces your Personal Allowance by £1 for every £2, fully extinguished by £125,140. If you cross £100k with salary, you can claw back PA by sacrificing salary into pension. If you cross with dividends, you can declare fewer this year and roll the rest to a future tax year. The marginal effective rate in the taper zone is around 60% on the salary path and 53.75% on the dividend path - both worth avoiding.
Does my company need to pay Employer NI on the £12,570 director salary?: Yes - but only on the slice above the £5,000 Secondary Threshold. In 2026/27 the rate is 15%, so the employer NI on a £12,570 salary is £1,135.50. Most single-director companies cannot claim Employment Allowance (since 2016 the director must not be the only employee for EA), so this £1,135.50 typically lands. The salary plus employer NI are both deductible expenses for Corporation Tax, recovering 19% in CT savings on the slice below £50k profit.
What about pension contributions from the company?: Employer pension contributions from a limited company are deductible against Corporation Tax (saving 19%-26.5%-25% depending on the band), with no Income Tax, no employee NI, and no employer NI on either side. For most director-shareholders the most tax-efficient extraction route is: £12,570 salary + £500 dividend allowance + £60,000 employer pension (the Annual Allowance), with anything above taken as dividends. Always check the wholly-and-exclusively test for HMRC.
How accurate is this calculator?: We model the standard six-tax stack (Corporation Tax, Employer NI, Employee NI, Income Tax, Dividend Tax, plus Employment Allowance if elected) using HMRC published rates for the selected year. We do not model: the Director's Loan Account, IR35 deemed payments, Business Asset Disposal Relief on company wind-up, salary sacrifice into pension, payrolled BIK, or PSC-style anti-avoidance rules. Treat the result as a planning estimate - confirm specifics with a chartered accountant.

Other UK tax calculators that pair with the Salary vs Dividend.