UK Salary vs Dividend Calculator 2026/27
Compare PAYE salary vs dividends for UK director-shareholders 2026/27. Stacks Corporation Tax, Employer NI, Employee NI, Income Tax and Dividend Tax to find the optimum mix.
| Director salary | £12,570 |
|---|---|
| Dividends declared | £37,430 |
| Corporation Tax | −£13,818 |
| Employer NI | −£1,136 |
| Employee NI | −£0 |
| Income Tax | −£0 |
| Dividend Tax | −£3,970 |
| Net to shareholder | £46,030 |
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£28,180Salary £12,570 + dividends £17,430Combined tax rate 19.7%See full breakdown →
- £50,000 extraction£46,030Salary £12,570 + dividends £37,430Combined tax rate 23.7%See full breakdown →
- £100,000 extraction£78,348Salary £12,570 + dividends £87,430Combined tax rate 36.1%See full breakdown →
- £150,000 extraction£110,048Salary £12,570 + dividends £137,430Combined tax rate 40.5%See full breakdown →
- £200,000 extraction£140,373Salary £12,570 + dividends £187,430Combined tax rate 42.9%See full breakdown →
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: 10.75% basic, 35.75% 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) + 10.75% 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 10.75%). 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 10.75%). 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 10.75% (£3,299) + £49,230 at 35.75% (£16,615) = £19,914 dividend tax. Net to shareholder £80,086. The effective marginal rate has jumped — every extra pound of dividend now costs 35.75% 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% (35.75% 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 35.75% s455 charge until repayment.
- Business Asset Disposal Relief (BADR) on winding up the company — a 10% Capital Gains Tax (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.
Related calculators and guides
- 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.
Related calculators
Other UK tax calculators that pair with the Salary vs Dividend.
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 35.75%. 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 Benefit in Kind (BIK), or PSC-style anti-avoidance rules. Treat the result as a planning estimate - confirm specifics with a chartered accountant.