Assumptions this calculator makes
Your personal allowance is tapered on your total income - salary, other income and the dividends themselves all count, so above £100,000 of combined income the allowance shrinks and vanishes at £125,140. Dividend bands are UK-wide: if you are a Scottish taxpayer your salary uses Scottish rates but your dividends use the UK thresholds. The company side models Corporation Tax including marginal relief, and employer National Insurance without the Employment Allowance (most single-director companies cannot claim it). Figures are estimates for comparison, not advice.
The 2026/27 Director's Salary Strategy
From 6 April 2026, dividend tax rates rose by 2 percentage points on the Basic and Higher bands (to 10.75% and 35.75%). The £5,000 Employer NI Secondary Threshold introduced in 2025/26 continues, so every pound of salary above that still attracts 15% Employer NI.
- The New Reality: Paying a salary above £5,000 still attracts 15% Employer NI. The old "NI Free" sweet spot of £9,100 remains gone.
- Is Salary Still Efficient? Yes. Despite the 15% Employer NI charge, salary is a deductible business expense. This saves you Corporation Tax (19% – 26.5% marginal). For most directors, the Corp Tax saving still outweighs the NI cost.
- Recommendation: Many accountants still advise taking a salary up to the Personal Allowance (£12,570) to maximise Corp Tax relief, even though it incurs some NI. With the 2pp dividend rise, the trade-off shifts slightly in favour of salary at the margin — run your exact numbers above.
How the Tax is Calculated
As a Limited Company Director, your income is taxed twice: once at the company level (Corporation Tax) and once at the personal level (Dividend Tax).
1. Corporation Tax & Marginal Relief
Before you can pay a dividend, your company must pay Corporation Tax on its profits (minus your salary and Employer NI, which are deductible expenses).
- Small Profits Rate (19%): Profits up to £50,000.
- Main Rate (25%): Profits over £250,000.
- Marginal Relief: Profits between £50,000 and £250,000 pay an effective marginal rate of 26.5%.
2. Personal Dividend Tax Rates (2026/27)
You get a £500 Tax-Free Dividend Allowance (unchanged from 2025/26). Beyond that, rates rose by 2pp on the Basic and Higher bands from 6 April 2026:
- Basic Rate: 10.75% (up from 8.75%)
- Higher Rate: 35.75% (up from 33.75%)
- Additional Rate: 39.35% (unchanged)