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.

£125,000 Salary vs Dividend UK 2026/27

Extracting £125,000 from your UK limited company in 2026/27. The tax-efficient mix - £12,570 director salary plus £112,430 in dividends - gives you £96,649 net to your personal bank account. Taking the full £125,000 as 100% salary instead would yield £78,057 - a £18,591 advantage for the mix (23.8%).

Tax-efficient mix

£96,649

£12,570 salary + £112,430 dividends

100% salary route

£78,057

£42,432 IT + £4,511 EE NI + £18,000 ER NI

Scotland (same mix)

£96,649

Dividend rates UK-wide; only PAYE differs

Tax stack on £125,000

Pre-tax company profit needed to fund £125,000 extraction: £200,000 (model assumes 60% margin on the extraction).
Director salary £12,570 and employer NI £1,136 are deducted as company expenses.
Corporation Tax on the remaining profit: £45,618 (effective 24.5%).
Distributable profit available for dividends: £140,676. Dividends declared: £112,430.
Personal taxes on the dividends: £28,351 dividend tax. Salary at £12,570 attracts £0 Income Tax and £0 employee NI (sits at the Personal Allowance / Primary Threshold).
Net to shareholder: £96,649. Combined effective tax rate: 37.6% of the underlying company profit.

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Your salary in context

ONS · HMRC · CPI

Optimum mix

Salary of £12,570 (Personal Allowance level) + dividends of £112,430 = £125,000 total extraction.
Net to shareholder

After Corporation Tax, employer NI, employee NI, Income Tax and Dividend Tax, you keep £96,649 in your personal bank account.
Effective tax rate

Combined personal + company taxes consume 37.6% of the underlying company profit (£200,000).
Corporation Tax

After deducting the £12,570 salary and £1,136 employer NI, profits chargeable to CT are £186,295 - CT due £45,618 (effective 24.5%).
Top dividend band

The top slice of your dividends falls in the Higher rate band - the rate paid on the marginal pound of dividend is 33.75%.
Salary + dividend vs salary-only

Taking £125,000 as 100% salary would yield £78,057 net - that's £18,591 more than the salary + dividend mix.
Employment Allowance

If your company qualifies for the £10,500 Employment Allowance (you need a second non-director employee), the £1,136 employer NI falls to £0 - a direct uplift to net.

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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.