Salary vs dividend
If you run your own limited company, how you pay yourself — salary, dividends, or a mix — changes your tax bill by thousands. Enter how much you want to draw from the company and we’ll compare each salary/dividend split across Corporation Tax, dividend tax and National Insurance, and show what actually lands in your pocket.
Your company
Where your draw goes
Compare the options
The amount you draw is treated as pre-tax profit: salary (and its employer NI) come out first, then Corporation Tax at the rate you pick, and the rest is paid as dividends. Models rest-of-UK rates, employer NI (15% over £5,000), employee NI, income tax on salary and dividend tax (10.75/35.75/39.35% after the £500 allowance). This is general guidance, not financial or tax advice — confirm with a qualified accountant.
The thinking behind each option
Two forces decide the best split. First, salary is deductible from Corporation Tax but carries National Insurance, while dividends avoid NI but are paid from post-tax profit and carry dividend tax (10.75% in the basic band, 35.75% higher, since the 2 percentage-point rise in April 2026). Second, a salary of at least £6,708 — the Lower Earnings Limit — earns a qualifying year towards your State Pension, even though no NI is actually due until £12,570. In 2026/27 a £12,570 salary is the most tax-efficient choice for most directors; the lower salaries mainly help when you can’t use the Corporation Tax relief, want to minimise employer NI, or have other income that would tax extra salary heavily.
| Salary level | What it does | When it tends to win |
|---|---|---|
| £12,570 | Uses your whole tax-free personal allowance and pays no employee NI; every pound is Corporation-Tax-deductible. A sole director’s company pays about £1,136 employer NI on it. | Best in almost all cases in 2026/27 — and by the widest margin when you can claim the £10,500 Employment Allowance, which wipes out the employer NI. |
| £6,708 | Sits exactly on the Lower Earnings Limit, so it still earns a State Pension qualifying year while keeping employer NI to about £256 (15% of the £1,708 above £5,000). | When you want the pension year with minimal employer NI, the company has little taxable profit to relieve, or other income would tax extra salary at a higher rate. |
| £5,000 | Exactly at the secondary threshold, so zero employer NI. Any unused allowance is taken as dividends instead of Corporation-Tax-deductible salary. | When you want no employer NI and don’t need a State Pension year — or other income already fills your tax-free and basic-rate bands. |
| £0 | All dividends — no NI anywhere, but no Corporation Tax deduction and no pension credit. | Rarely best; mainly when another job already uses your personal allowance and NI band. |
| All salary | Avoids dividend tax, but pays income tax plus employee and employer NI on the lot, with no benefit from the lower dividend rates. | Almost never the cheapest — shown for contrast, or where you simply prefer no dividends and less admin. |
A State Pension qualifying year needs salary at or above the £6,708 Lower Earnings Limit. Company pension contributions are a further route that avoids both NI and dividend tax — often the most efficient option above the basic-rate band. Always confirm your own position with an accountant.
Why a split beats either extreme
Pay yourself purely in salary and every pound above the thresholds meets income tax plus employee NI, with employer NI on top before it even reaches you. Pay yourself purely in dividends and you dodge NI entirely, but dividends come out of profit the company has already paid Corporation Tax on, then meet dividend tax at 10.75%, 35.75% or 39.35% in 2026/27. Each route has one hand tied. The standard play uses both: a small salary that costs almost nothing in tax, then dividends for the rest.
The £60,000 example in full
Draw £60,000 of profit with a £12,570 salary and the balance as dividends, at 19% Corporation Tax, and £46,091 lands in your pocket: a 23% overall tax rate. Take the whole £60,000 as salary instead and you keep £41,197, so the all-salary habit costs £4,894 a year. Even all-dividends underperforms at £44,781, because a salary up to the personal allowance is free of income tax in your hands and deductible against Corporation Tax for the company. The £12,570 salary also banks a qualifying year for your State Pension, which pure-dividend directors sometimes discover they've been skipping.
What moves the answer
Three dials matter. Your Corporation Tax rate: at the 26.5% marginal rate the deduction for salary is worth more, which shifts the optimum. The Employment Allowance: a company with two or more people on payroll can wipe out the employer NI that a sole director pays on salary above £5,000. And other income: a directorship alongside employment elsewhere changes which bands your dividends fall into. The calculator runs your own numbers through all three. For the bigger picture including employer pension contributions, often the best extraction route of all, see the director's pay planner, and check the company's own bill with the corporation tax calculator.
Common questions
Is it better to pay myself in salary or dividends?
For most limited-company directors a small salary plus dividends is the most tax-efficient mix, because dividends avoid National Insurance and are taxed at lower rates. The calculator finds the split that leaves you with the most.
What salary should a director take in 2026/27?
Common choices are £12,570, which uses the full Personal Allowance, or a lower figure where you cannot claim the Employment Allowance. The tool compares the usual options and shows which keeps the most after all taxes.
How are dividends taxed?
After a £500 tax-free dividend allowance, dividends are taxed at 10.75% for basic-rate, 35.75% for higher-rate and 39.35% for additional-rate taxpayers — the basic and higher rates rose by 2 percentage points in April 2026 — with no National Insurance to pay.
These results are estimates for general information only and are not financial advice. Check every figure yourself and seek appropriate advice from a qualified professional before making any decision. Read the full disclaimer.