How to use the salary vs dividend calculator
- 1 Enter the company profit before any director pay.
- 2 Choose whether the company can claim the Employment Allowance.
- 3 Compare take-home pay under both options.
- 4 Read the extra amount you keep with salary plus dividends.
Worked example
A company makes £60,000 before paying its sole director. As all salary, about £52,826 can be paid, leaving £41,197 after tax and NI. With a £12,570 salary, Corporation Tax of about £8,796 and £37,499 of dividends taxed at 10.75%, the director keeps £46,091, about £4,895 more.
Choosing a director's pay mix
- A £12,570 salary uses the personal allowance and builds a qualifying year for the State Pension, while Corporation Tax relief usually outweighs the small employer NI cost.
- Dividends are paid from profit after Corporation Tax and need proper paperwork: board minutes and a dividend voucher.
- Mortgages: lenders usually look at salary plus dividends over two years, so keep accounts filed on time.
- Pensions: employer pension contributions avoid income tax, NI and dividend tax, and reduce Corporation Tax.
Work out the company's bill with the Corporation Tax Calculator and your own with the Dividend Tax Calculator. Self Assessment payments follow; see the Payments on Account Calculator.
Features
Two options compared
All salary against a £12,570 salary plus dividends.
Employer NI
15% above the £5,000 secondary threshold.
Corporation Tax
Applied to profits after salary, with marginal relief.
Dividend tax
10.75%, 35.75% and 39.35% after the £500 allowance.
When to use it
New directors
Choose a pay structure for your first year. Work out company tax with the Corporation Tax Calculator.
Contractors
Compare limited company and umbrella income. See your bill with the Dividend Tax Calculator.
Year-end
Decide how much dividend to declare. Plan payments with the Payments on Account Calculator.
Budget changes
See the effect of higher dividend tax rates. Compare with the Self-Employed Tax Calculator.
Related Tax tasks
Frequently asked questions
Why take a salary of £12,570?
It uses your personal allowance, so no income tax is due on it, and it keeps your State Pension record because it is above the lower earnings limit. Employee NI is also zero at that level.
What are the dividend tax rates for 2026/27?
10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. The first £500 of dividends is tax-free.
Why are dividends often better?
Dividends do not attract National Insurance for either the company or the director. Although they are paid from profits after Corporation Tax, the combined tax is usually lower than on salary.
What is employer National Insurance?
Companies pay 15% on salaries above £5,000 a year. Salary and employer NI are deductible for Corporation Tax.
Can a sole director company claim the Employment Allowance?
No. If the only employee paid above the secondary threshold is a director, the company cannot claim it.
Can I pay dividends at any time?
Only from retained profits after tax. You need board minutes and a dividend voucher for each payment.
Is salary better for mortgages?
Lenders usually accept dividends for directors with two years of accounts, but some prefer a higher salary. Check before applying.
What about pension contributions?
Employer pension contributions are often the most tax-efficient extraction, as they save Corporation Tax and carry no NI or income tax.
Does this include student loans?
No. Dividends and salary both count as income for student loan repayments through Self Assessment.
Do I need to file Self Assessment?
Yes, if you receive dividends over £10,000 or are a company director in most cases.
Does this calculator assume one director?
Yes. It assumes one shareholder director with no other income. Splitting shares with a spouse can change the result, but get advice on the settlements rules.
Results are estimates based on the official rates linked above. Confirm important figures with the issuing authority or a qualified adviser before you act on them.
Built and reviewed by Hamza Farooq, founder and lead developer
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