Salary vs Dividend Calculator 2026/27
Last updated: March 2026 — Rates for the 2026/27 tax year
Company director? Enter your profit and adjust the salary slider to see how different salary/dividend splits affect your take-home pay. We'll show you the optimal split automatically.
Salary vs Dividend Tax Rates 2026/27
Salary and dividends are taxed very differently. The table below shows why most directors take a small salary and top up with dividends.
| Income Type | Basic Rate Band | Higher Rate Band | NI Payable |
|---|---|---|---|
| Salary | 20% income tax + 8% NI = 28% | 40% income tax + 2% NI = 42% | Yes — employee + employer |
| Dividends | 8.75% dividend tax | 33.75% dividend tax | No NI at all |
The £500 annual dividend allowance means the first £500 of dividend income is always tax-free.
The Optimal Director Salary Strategy
- Step 1 — Salary at £12,570 (personal allowance): zero income tax, zero employee NI, and it's deductible against corporation tax.
- Step 2 — Employer pension contributions up to £60,000: fully deductible, no NI, tax-free growth.
- Step 3 — Dividends up to the basic rate band (£50,270 total income): taxed at just 8.75%, no NI.
- Step 4 — Stop before £100,000 total income to avoid the 60% personal allowance taper.
- Consider the Employment Allowance (£10,500) if your company employs others — it may make a slightly higher salary worthwhile.
Related Tools
Frequently Asked Questions
Should I take a salary or dividends from my limited company?▾
The most tax-efficient approach for most directors is to take a small salary at the personal allowance (£12,570) and the rest as dividends. This minimises National Insurance while still getting a corporation tax deduction on the salary and protecting your State Pension entitlement.
What is the optimal director salary for 2026/27?▾
The optimal salary is typically £12,570, matching the personal allowance. At this level you pay zero income tax and zero employee NI. The salary is deductible for the company, saving corporation tax. If your company qualifies for the Employment Allowance (£10,500), a slightly higher salary may be optimal.
How are dividends taxed in 2026/27?▾
The first £500 of dividends is tax-free (dividend allowance). After that, rates are 8.75% for basic rate taxpayers, 33.75% for higher rate, and 39.35% for additional rate. Crucially, no National Insurance is payable on dividends, making them more tax-efficient than salary above the personal allowance.
Do I pay National Insurance on dividends?▾
No. Dividends are not subject to National Insurance — neither employee NI nor employer NI. This is the main reason dividends are more tax-efficient than salary for company directors above the personal allowance threshold.
What is the 60% tax trap and how does it affect directors?▾
If your total income (salary + dividends) falls between £100,000 and £125,140, your personal allowance is tapered away at £1 for every £2 above £100k. This creates an effective marginal tax rate of around 60%. Directors should plan their extraction to avoid this zone.
What about employer National Insurance on director salaries?▾
Employer NI is charged at 15% on salary above £5,000. However, if your company qualifies for the Employment Allowance, the first £10,500 of employer NI is offset. For a salary of £12,570, employer NI would be £1,135.50 before the allowance — fully covered if eligible.