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New Sep 2026

Salary vs Dividend Calculator (2026/27)

The familiar advice, a small salary at the National Insurance threshold and the rest as dividends, is right more often than its critics allow: it holds for a company that cannot claim the Employment Allowance, at any profit up to about £128,000. What no canned answer tells you is where it stops being right. Claim the Employment Allowance and the best salary rises to £75,000 or beyond. Earn between £128,000 and £164,000 and the right salary falls, because your personal allowance is tapering away. Pass £189,000 and salary beats dividends outright. This calculator works out which case you are in, and shows the whole cost stack rather than the personal tax alone.

1. Your company
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£
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Most single-director companies answer No. You cannot claim the allowance where the only employee paid above the £5,000 secondary threshold is a director.

2. You
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3. What you want
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The same ten thousand pounds of profit, two different right answers Two panels compare taking a further ten thousand pounds of company profit as salary or as dividend, for a higher-rate taxpayer. Where the company pays Corporation Tax at nineteen per cent the dividend leaves about one hundred and sixty-one pounds more in hand. Where it pays the twenty-five per cent main rate the salary leaves about two hundred and twenty-five pounds more. The same £10,000 of profit, two different right answers A higher-rate taxpayer takes a further £10,000 from the company. Only the Corporation Tax band differs. Profit under £50,000 Corporation Tax 19% AS SALARY Take-home £5,043 · Income Tax £3,478 · NI £1,478 AS DIVIDEND Take-home £5,204 · Dividend Tax £2,896 · Corp Tax £1,900 Dividend wins, by £161 The lower personal rate on a dividend more than covers the 19% the company pays first. Profit over £250,000 Corporation Tax 25% AS SALARY Take-home £5,043 · Income Tax £3,478 · NI £1,478 AS DIVIDEND Take-home £4,819 · Dividend Tax £2,681 · Corp Tax £2,500 Salary wins, by £225 Salary is deducted before Corporation Tax, so it now saves tax at 25% rather than 19%. Take-home Income or Dividend Tax National Insurance Corporation Tax Dividend rates apply UK-wide, including Scotland. Assumes the £500 dividend allowance is already used and earnings are above the upper earnings limit. Source: gov.uk · HMRC rates and thresholds 2026/27 ukfinancetools.co.uk
The advice to take a small salary and the rest as dividends is not wrong so much as incomplete. It is right at the bottom of the Corporation Tax scale and wrong at the top, because salary is deducted before Corporation Tax and a dividend is not.

Why your Corporation Tax band changes the answer

The usual comparison sets the dividend rates against the Income Tax rates and stops there. That comparison is incomplete, because the two are not paid out of the same money. Salary is a deductible business expense, so it reduces the profit your company pays The tax a company pays on its profits: for 2026/27, 19% up to £50,000, 25% above £250,000 and an effective 26.5% in between. A director's salary is deducted before it is worked out. A dividend is not. on. A dividend is a distribution of profit that has already been taxed.

So the honest question is not "which rate is lower", it is "how much profit does each route consume before a pound reaches you". That depends on the Corporation Tax rate your company actually pays, and for 2026/27 there are three of them:

  • 19% where profits are £50,000 or less, the small profits rate.
  • 25% where profits are above £250,000, the main rate.
  • An effective 26.5% on the slice between those two limits. This is not a published rate. It is the arithmetic of What bridges the 19% and 25% Corporation Tax rates: tax at 25%, less 3/200 of the amount by which profits fall short of £250,000. The relief shrinks as profit rises, so each extra pound in the band is taxed at 26.5%., which charges the main rate and then gives back 3/200 of the distance below £250,000. The relief shrinks as profit rises, so each extra pound in that band is taxed at 26.5% - more than the main rate above it.

That middle band is the one the canned answers miss, and it produces a result most directors find surprising: a company on £120,000 of profit is taxed at the margin more heavily than one on £300,000, because the larger company has passed the relief altogether and simply pays 25%.

Be clear about what this does and does not change. For a company that cannot claim the Employment Allowance, the recommended salary stays at £12,570 across all three Corporation Tax bands, for profits up to about £128,000. What moves over that range is the cost, and it moves a great deal. So the familiar answer is right there, and a tool that says so is being accurate rather than lazy. What it cannot tell you is which case you are in, and there are three where the answer is different.

The three cases where the familiar answer is wrong

1. Your company can claim the Employment Allowance. Once profit is high enough to use it, the best salary jumps to £75,000 or beyond, because the allowance pays the employer National Insurance while the salary still reduces Corporation Tax.

2. Profit is between about £128,000 and £164,000, and this one is genuinely counter-intuitive: the right salary goes down, not up. At that profit the dividends you draw push your Your total taxable income for the year, less grossed-up pension contributions and Gift Aid donations. It is the figure that decides the personal-allowance taper, the childcare thresholds and the High Income Child Benefit Charge. past £100,000, so your personal allowance starts tapering away at £1 for every £2 above it. The salary that was sheltered by the allowance is no longer sheltered, and paying it stops being worthwhile. The optimum falls steadily from £12,570 to about £5,000 across that band, then returns to £12,570 once the allowance is fully gone and there is nothing left to taper. No tool that hard-codes an answer will show you this, and it is worth real money in the middle of the band.

3. Profit is above about £189,000. Salary then beats dividends outright, and the recommendation jumps to six figures. The reason is that salary is deducted before Corporation Tax while a dividend is not, and at the top of the scale that deduction is worth more than the lower personal rate on dividends.

Those boundaries move with your other income, so treat them as the shape of the answer rather than as fixed lines. Put your own figures in above.

Source: GOV.UK Corporation Tax rates and allowances and HMRC Corporation Tax Marginal Relief.

The Employment Allowance question most calculators do not ask

The A relief that lets eligible employers cut their employer National Insurance bill by up to £10,500 (2026/27). A single-director company with no other employee above the secondary threshold cannot claim it. lets an eligible employer cut its employer National Insurance bill by up to £10,500 a year. Employer National Insurance is charged at 15% on pay above the £5,000 The pay level above which an employer pays Class 1 National Insurance on a worker - £5,000 a year for 2026/27, with employer NI charged at 15% above it., so the allowance covers the employer National Insurance on roughly the first £75,000 of salary.

It changes the answer completely. With the allowance, salary up to that point costs the company nothing in employer National Insurance while still reducing its Corporation Tax bill, so a much larger salary becomes worthwhile. Without it, every pound of salary above £5,000 carries that 15% charge, and the sweet spot collapses back to a low salary.

Here is the catch. GOV.UK states the rule plainly: "If your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance." A single-director company with no other staff on the payroll above £5,000 therefore cannot claim it. That describes a great many contractor and consultancy companies, and it is the assumption a consumer calculator is most likely to get wrong in your favour - producing a salary recommendation that costs you money without ever saying so.

This calculator asks the question rather than assuming the answer, and it shows you what the opposite answer would have produced, so you can see how much turns on it. If you are unsure whether your company qualifies, check the GOV.UK eligibility rules before acting on any figure here.

What changed for 2026/27

Dividend rates rose by 2 percentage points from 6 April 2026. The ordinary rate went from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate is unchanged at 39.35%, and the The amount of dividend income you can receive each year before dividend tax applies. It is £500 for 2026/27. stays at £500.

A rise in the dividend rates narrows the dividend advantage without removing it. It does not move the recommended split at every profit level: below about £128,000 of profit the best salary is identical under the old rates and the new, and it stays within a pound of identical until about £164,000. What it changes everywhere is the bill. Above that level the rise genuinely does push the optimum toward salary, so a calculator still working from 8.75% will understate your tax at any profit, and recommend the wrong split at a high one. The figures on this page and in the calculator use the current rates, published at GOV.UK Tax on dividends.

If you only want the tax on a dividend you have already decided to take, the dividend tax calculator answers that directly, and how dividend tax is calculated walks through the band-by-band stacking. This page is for the prior question of how much to take as a dividend at all. For the wider strategy, including the reasons a director might deliberately not optimise, see the director salary and dividend strategy guide.

What this calculator does not do

The split is a tax calculation, and tax is not the whole decision. These are the limits, stated plainly, because a tool that hides them is worse than one that admits them.

  • It assumes a single company. The £50,000 and £250,000 Corporation Tax limits are divided by the number of associated companies. With one associated company the limits halve, so profit of £60,000 lands in the marginal band rather than the small profits rate. If you control more than one company, the figures here will be too generous.
  • It ignores employer pension contributions. For many directors this is the genuinely optimal third lever: an employer contribution is a deductible expense, carries no National Insurance, and is not taxed as your income now. It will often beat both salary and dividend for money you do not need this year. It is out of scope here deliberately, rather than modelled badly.
  • It assumes one shareholder taking the whole dividend. Dividends must be paid in proportion to shareholdings. A spouse or other shareholder changes the answer, and so do different share classes.
  • It ignores benefits in kind, salary sacrifice and student loan repayments.
  • It assumes the profit figure you enter is correct and the dividend is lawful. A dividend can only be paid out of distributable reserves. If the company does not have them, the payment is not a dividend however it is labelled.
  • A lower tax bill is not always the right answer. A low salary can reduce mortgage borrowing capacity, statutory maternity and paternity pay, income protection cover and death-in-service benefits. It can also cost you a year of State Pension. A year counts as a qualifying year only if you are paid at least the lower earnings limit, £6,708 for 2026/27, which is a different and higher figure than the £5,000 secondary threshold that governs employer National Insurance. Confusing the two is easy and expensive. Where the tax-optimal salary falls below the lower earnings limit, the calculator says so in its results. Directors often take more salary than the tax-optimal figure for exactly these reasons, and they are not being irrational.

This is an estimate for one company and one director, using 2026/27 rates and thresholds. It is not tax advice, and it does not replace an accountant who knows your circumstances.

Source: GOV.UK Corporation Tax rates and allowances, HMRC Corporation Tax Marginal Relief, GOV.UK Employment Allowance eligibility, HMRC Rates and Thresholds for Employers 2026 to 2027 & GOV.UK Tax on dividends.

Frequently Asked Questions

What is the optimal salary for a company director in 2026/27?

For a single-director company that cannot claim the Employment Allowance, 12,570 pounds is the answer across every Corporation Tax band, for profit up to about 128,000 pounds. The familiar advice is right in that range, and this calculator will tell you so rather than invent a difference. It changes in three situations. Where the company can claim the Employment Allowance, a salary of 75,000 pounds or more is usually better, because the allowance covers the employer National Insurance up to that point. Where profit runs between about 128,000 and 164,000 pounds, the right salary falls rather than rises, because the dividends you draw taper your personal allowance away. And above about 189,000 pounds of profit, salary beats dividends outright. Enter your own profit figure to see which case you are in, and note that the cost of the same split varies widely even where the split itself does not.

Why is the Corporation Tax rate 26.5% when the main rate is 25%?

The 26.5% is an effective marginal rate, not a published one. Between 50,000 and 250,000 pounds of profit, Corporation Tax is charged at the 25% main rate and then reduced by Marginal Relief of 3/200 of the amount by which profits fall short of 250,000 pounds. Because that relief shrinks as profit grows, each additional pound of profit in the band is taxed at 26.5%. Profit above 250,000 pounds is taxed at a flat 25%, so the marginal rate actually falls once you pass the upper limit.

Can a single-director company claim the Employment Allowance?

Usually not. GOV.UK states that where a company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance. So a company whose sole director is its only person paid above the 5,000 pound secondary threshold cannot claim the allowance. Taking on a second employee paid above that threshold can change the position, but that is a business decision with its own costs, not a tax trick.

Do Scottish income tax rates change the best salary and dividend split?

They change the salary side only. Scottish rates and bands apply to your salary, so a Scottish taxpayer reaches higher marginal rates on salary sooner. Dividend rates are set UK-wide and are identical wherever you live in the UK. The practical effect is that the salary leg becomes relatively more expensive for a Scottish taxpayer at higher salary levels, which can move the optimum. Select Scotland in the calculator to see your own figures.

Should I take the tax-optimal split?

Not always, and the calculator does not pretend otherwise. A very low salary can reduce how much a lender will offer on a mortgage, cut statutory maternity or paternity pay, and reduce income protection and death-in-service cover. It can also cost you a State Pension qualifying year: a year only counts if you are paid at least the lower earnings limit, 6,708 pounds for 2026/27, which is higher than the 5,000 pound secondary threshold people often quote for this. An employer pension contribution is also frequently a better home for profit than either salary or dividend. Treat the figure here as the tax answer, then weigh the rest.

Why do dividends cost more than they used to?

The ordinary and upper dividend rates each rose by 2 percentage points from 6 April 2026, to 10.75% and 35.75%. The additional rate stayed at 39.35% and the dividend allowance stayed at 500 pounds. That rise narrows the long-standing dividend advantage without removing it. It raises the bill at every profit level, but it does not move the recommended split at every profit level. Below about 128,000 pounds of profit the best salary is identical under the old rates and the new, and it stays within a pound of identical until about 164,000 pounds. Any calculator still using 8.75% and 33.75% will understate your tax at any profit, and recommend the wrong split at a high one.