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.

£200,000 Salary vs Dividend UK 2026/27

Extracting £200,000 from your UK limited company in 2026/27. The tax-efficient mix - £12,570 director salary plus £187,430 in dividends - gives you £142,876 net to your personal bank account. Taking the full £200,000 as 100% salary instead would yield £117,786 - a £25,089 advantage for the mix (21.3%).

Tax-efficient mix

£142,876

£12,570 salary + £187,430 dividends

100% salary route

£117,786

£76,203 IT + £6,011 EE NI + £29,250 ER NI

Scotland (same mix)

£142,876

Dividend rates UK-wide; only PAYE differs

Tax stack on £200,000

Pre-tax company profit needed to fund £200,000 extraction: £320,000 (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: £76,574 (effective 25.0%).
Distributable profit available for dividends: £229,721. Dividends declared: £187,430.
Personal taxes on the dividends: £57,124 dividend tax. Salary at £12,570 attracts £0 Income Tax and £0 employee NI (sits at the Personal Allowance / Primary Threshold).
Net to shareholder: £142,876. Combined effective tax rate: 42.1% of the underlying company profit.

Cite or embed - free under CC BY 4.0

Your salary in context

ONS · HMRC · CPI

Optimum mix

Salary of £12,570 (Personal Allowance level) + dividends of £187,430 = £200,000 total extraction.
Net to shareholder

After Corporation Tax, employer NI, employee NI, Income Tax and Dividend Tax, you keep £142,876 in your personal bank account.
Effective tax rate

Combined personal + company taxes consume 42.1% of the underlying company profit (£320,000).
Corporation Tax

After deducting the £12,570 salary and £1,136 employer NI, profits chargeable to CT are £306,295 - CT due £76,574 (effective 25.0%).
Top dividend band

The top slice of your dividends falls in the Additional rate band - the rate paid on the marginal pound of dividend is 39.35%.
Salary + dividend vs salary-only

Taking £200,000 as 100% salary would yield £117,786 net - that's £25,089 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.

Nearby salaries

Related calculators

Contractor calculator - day-rate framing for IR35 contractors.
Dividend tax calculator - standalone dividend tax stack.
Corporation Tax calculator - 19% / 26.5% / 25% with marginal relief.
Pension annual allowance - £60k cap + high-income taper.
Salary vs Dividend hub - change inputs interactively.

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.