Salary vs Dividend Explorer
As a UK limited company director, you choose how to pay yourself — a combination of salary and dividends. Different splits have different tax implications. This tool lets you explore those options so you can have an informed conversation with your accountant.
Educational tool, not financial advice
This explorer shows estimates based on published HMRC rates for the 2026/27 tax year. It assumes a single director with no other employees. Use these figures as a starting point for conversations with your accountant — not as a basis for action.
YOUR DETAILS
Methodology
How This Calculator Works
A step-by-step explanation of the calculation method
- 1
Start with gross profit
The calculator takes your company's annual revenue and subtracts business expenses to arrive at gross profit. This is the total amount available to pay yourself and cover taxes.
- 2
Set a salary and calculate employer's NI
When you set a salary level, the company must also pay employer's National Insurance at 15% on salary above £5,000. This is a company cost that reduces the profit available for dividends — it is often overlooked by directors who focus only on the salary figure itself.
- 3
Calculate Corporation Tax on remaining profit
After deducting salary and employer's NI from gross profit, Corporation Tax is applied to what remains. The rate is 19% on profits up to £50,000 and 25% on profits above £250,000, with marginal relief in between.
- 4
Remaining profit becomes available for dividends
The profit left after Corporation Tax is the maximum amount that can legally be declared as dividends. Dividends can only be paid from distributable reserves — this is a legal requirement, not a suggestion.
- 5
Apply personal taxes
The calculator then applies personal taxes: income tax on salary (above your personal allowance), employee NI on salary, and dividend tax on dividends (above the £500 dividend allowance). Your net take-home is what remains after all these personal deductions.
- 6
Test every salary level to find the maximum take-home
The optimiser runs this entire calculation for every salary level in £100 increments — from zero to the maximum the company can afford — and identifies the salary level that produces the highest net take-home pay. It also checks known “sweet spots” like the personal allowance threshold (£12,570) and the NI secondary threshold (£5,000).
All rates and thresholds used in this calculator are sourced from published HMRC guidance for the 2026/27 tax year. See the full source list above.
Want to understand the reasoning behind the optimal salary level? Read our guide to the optimal director's salary for 2026/27.
See what's changed for 2026/27 in our tax year changes guide for directors.
New to director pay? Start with our complete guide to paying yourself from a limited company.
Worked Examples
Salary vs Dividend at Different Profit Levels
See how the optimal split changes as company profits grow
Example: £30,000 gross profit
Optimal split
Total tax: £5,597
100% salary
Total tax: £7,228
→ You keep £24,403 with the optimal split — £1,632 more than taking it all as salary.
At this profit level, the optimal salary sits at the personal allowance threshold (£12,570) because there is no benefit to triggering National Insurance contributions. The dividend tax rate of 10.75% is lower than the 20% income tax rate that would apply to salary above the personal allowance, so the remaining profit is more efficient as dividends even after Corporation Tax.
Example: £50,000 gross profit
Optimal split
Total tax: £11,138
100% salary
Total tax: £14,706
→ You keep £38,862 with the optimal split — £3,568 more than taking it all as salary.
This is the most common scenario for single-director IT contractors. The optimal salary remains at £12,570 — the personal allowance threshold. All dividends fall within the basic rate band, taxed at just 10.75%. The difference between this approach and taking everything as salary is substantial because the all-salary route triggers both employer NI (15%) and employee NI (8%) on income above the thresholds.
Example: £100,000 gross profit
Optimal split
Total tax: £34,790
100% salary
Total tax: £38,630
→ You keep £65,210 with the optimal split — £3,839 more than taking it all as salary.
Higher profits push some dividend income into the higher-rate tax band at 35.75%, which narrows the advantage of the salary-dividend split compared to lower profit levels. However, the split still produces a meaningful difference because the alternative — taking everything as salary — would trigger 40% income tax and 2% NI on income above £50,270, plus 15% employer NI on the full salary above £5,000.
Important
Common Mistakes to Avoid
Pitfalls that catch out many company directors
Taking dividends when there are no profits
Dividends can only legally be paid from retained profits after Corporation Tax. Paying dividends when the company has no distributable reserves is a breach of the Companies Act 2006 and can result in personal liability for the director, a requirement to repay the dividends, and potential issues with HMRC.
Forgetting employer's NI is a company cost
Many directors focus only on the salary figure and forget that employer's National Insurance at 15% is an additional company cost on top of the salary. A salary of £50,000 actually costs the company around £56,750 once employer's NI is included — and that £6,750 would otherwise be available for dividends.
Ignoring the state pension threshold
A salary below the National Insurance lower earnings limit (£6,396 for 2026/27) means no qualifying year for state pension purposes. While a salary of £5,000 avoids employer NI entirely, it does not build state pension entitlement. Directors need to weigh the NI saving against the long-term pension impact.
Not updating when tax rates change
Tax rates and thresholds change every April, and sometimes mid-year following Budget announcements. The optimal salary-dividend split for 2025/26 may not be optimal for 2026/27. Dividend tax rates increased by 0.75 percentage points in April 2026, and employer NI thresholds changed in April 2025. Review your approach at the start of each tax year.
Confusing personal allowance with NI threshold
The personal allowance (£12,570) and the NI primary threshold (£12,570) are currently the same amount, but this is coincidental. They are set by different legislation and could diverge in the future. The NI secondary threshold for employers is already different at £5,000. Treating these as permanently linked could lead to incorrect planning if they change independently.
Reference
2026/27 Tax Rates at a Glance
Key rates and thresholds used in this calculator
| Band | Rate | Threshold |
|---|---|---|
| Personal Allowance | 0% | Up to £12,570 |
| Basic rate | 20% | £12,571 – £50,270 |
| Higher rate | 40% | £50,271 – £125,140 |
| Additional rate | 45% | Over £125,140 |
| Type | Rate | Threshold |
|---|---|---|
| Employee NI | 8% | £12,570 – £50,270 |
| Employee NI (above UEL) | 2% | Over £50,270 |
| Employer NI | 15% | Above £5,000 |
| Item | Rate / Amount |
|---|---|
| Corporation Tax (small profits) | 19% (up to £50,000) |
| Corporation Tax (main rate) | 25% (over £250,000) |
| Dividend tax (basic rate) | 10.75% |
| Dividend tax (higher rate) | 35.75% |
| Dividend allowance | £500 |
Source: HMRC published rates for 2026/27. Last verified: 2026-03-16.
FAQ
Frequently Asked Questions
Common questions about salary vs dividend for company directors
All rates sourced from gov.uk. See our full source list.