Salary vs Dividend Calculator 2026/27

Three reasons, and they stack. First, salary is deductible. Every pound paid as salary (and the employer NI on it) knocks at least 19p off the corporation tax bill, 26.5p if the company sits in the marginal relief band between £50,000 and £250,000. A dividend gets no deduction.

Second, the first £12,570 of salary carries no income tax and no employee NI, because the personal allowance and the NI primary threshold are both set at that figure. Below it you are paying tax at 0% on money the company has just deducted at 19% or more. Hard to beat.

Third, the state pension. A salary at or above the lower earnings limit of £6,708 a year gives you a qualifying year on your National Insurance record, even though no NI is actually paid until £12,570. You need 10 qualifying years for any new state pension and 35 for the full amount. Pay yourself only dividends and that year is simply missing, unless you buy it back later with voluntary contributions.

Put together, the sweet spot for a sole director is normally £12,570. The £1,135.50 of employer NI it triggers is real, but it is itself deductible and it is smaller than the corporation tax and dividend tax it displaces. A £5,000 salary avoids the employer NI but leaves £7,570 of allowance unused, and the comparison table above shows what that costs.

Above £12,570 every extra pound of salary costs 20% income tax, 8% employee NI and 15% employer NI, against 10.75% dividend tax on money that has already lost 19% to 25% to corporation tax. For most companies the dividend route still edges it in the basic rate band, and pulls clearly ahead once your total income passes £50,270. So why would anyone take more?

Pension contributions. Personal pension tax relief is capped at your relevant UK earnings, and dividends do not count. If you want to put £30,000 a year into a pension personally you need £30,000 of salary. The usual answer is to have the company contribute directly instead: an employer contribution is deductible for corporation tax, carries no NI, and is not limited by your salary. If that route is open to you, keep the salary low and let the company pay.

Mortgage and borrowing evidence. Most lenders now accept salary plus dividends for company directors, and some will work from retained profit. A few still want payslips showing a salary that covers the repayments. If you are about to apply, ask the broker what evidence the lender wants before you fix this year’s salary. Two years of accounts showing a steady pattern matters more than the level itself.

Employment Allowance. If the company has a second employee earning above £5,000, it can claim up to £10,500 of Employment Allowance against employer NI. That removes the main cost of salary between £5,000 and £12,570 and can make a salary up to £50,270 closer to break-even with dividends. The calculator assumes no allowance, which is the position for a director on their own.

Statutory pay and losses. Statutory maternity and sick pay are based on salary, not dividends. And if the company is making a loss, a salary still counts as an expense that carries the loss forward, whereas a dividend cannot legally be paid at all without distributable profit.

It is a comparison tool, not a tax return. Keep these in mind when reading the result.

Student loans. Plan 1, 2, 4 and 5 repayments (9% above the threshold, 6% for postgraduate loans) are taken on total income including dividends once you are in Self Assessment. On a £40,000 dividend that can be over £1,000 a year and it is not shown here.

Pensions. No employer or personal contribution is modelled. A company pension contribution reduces the profit figure you enter, so the simplest way to test one is to knock it off the profit first.

Scottish income tax. The salary is taxed at the England, Wales and Northern Ireland rates (the rUK bands). Scotland has six bands from 19% to 48% for 2026/27, so a Scottish director on a salary above £12,570 will see a different income tax figure. Dividend tax, corporation tax and NI are UK-wide and unaffected.

Other income is approximate. The optional field fills your tax bands first and is not counted in take-home. It is treated as non-dividend income; dividends from other companies would stack differently.

IR35 and off-payroll working. If your contracts fall inside IR35 the fee payer deducts tax and NI as if you were employed, and the salary vs dividend question largely disappears. Nothing here checks employment status.

Accounting period, associated companies, benefits in kind. Corporation tax assumes a 12 month period ending on or after 1 April 2026 and no associated companies (which would shrink the £50,000 and £250,000 limits). Company cars, private medical cover and directors’ loan interest are ignored. Dividends are assumed to be paid in full, in the same tax year, from that year’s profit; retaining profit in the company is often the better move once you hit the higher rate band, and the dividend allowance guide covers how much can come out tax free.