Director Salary vs Dividend Calculator 2026/27
Salary vs dividends for a UK limited company director in 2026/27 — employer NI, corporation tax with marginal relief, dividend tax at the new rates, total tax and take-home, a £5,000 / £12,570 / all-salary comparison and the best salary for your profit.
| Salary route: employer NI | — |
|---|---|
| Corporation tax after salary, NI and pension | — |
| Dividends available | — |
| Personal tax: income tax + employee NI on salary | — |
| Personal tax: dividend tax | — |
| Total tax (company + personal) | — |
| Your take-home | — |
| Compare: £5,000 salary / £12,570 salary / all salary | — |
| Best salary for your situation | — |
| State Pension qualifying year | — |
In short
For a UK owner-director in 2026/27 a £12,570 salary is usually optimal: it attracts no income tax or employee NI, is deductible for corporation tax and earns a State Pension year, while the employer NI it triggers (15% above £5,000, about £1,136, or nil with the Employment Allowance) is smaller than the corporation and dividend tax saved. The rest is taken as dividends from post-tax profit — £500 tax-free, then 10.75% in the basic band and 35.75% above — and employer pension contributions are the most efficient extraction of all.
Who this is for: UK limited company owner-directors setting their salary and dividends for 2026/27.
Optimal director salary 2026/27
| Salary | Employer NI (sole director) | Why |
|---|---|---|
| £5,000 | £0 | Secondary threshold — but below the £6,500 LEL, so no State Pension year |
| £6,500 | £225 | Lower earnings limit — cheapest qualifying year |
| £12,570 | £1,136 | Personal allowance — no income tax or employee NI; usually best overall after corporation tax relief |
| £12,570 with Employment Allowance | £0 | Clearly optimal when EA is available |
- Dividends are paid from post-corporation-tax profit: 19% CT then 10.75% dividend tax in the basic band is an effective 27.7%; 25% CT then 35.75% is 51.8% — close to the 47% on salary at the top, so very high earners now gain little from dividends over salary.
- Timing: spread dividends across tax years, use a spouse-shareholder's basic band (genuine shareholdings), and keep income under £100,000 to protect the personal allowance.
- Pension: employer contributions up to £60,000 are deductible for the company and free of NI and income tax — the most efficient extraction.
- Scheduled change: dividend tax rates rose 2 points in April 2026; savings and property income rates rise in April 2027.
Assumptions
- Employer NI = 15% above £5,000 less £10,500 Employment Allowance if available; corporation tax on profit − salary − employer NI − pension (19% to £50,000, marginal relief to £250,000, 25% above).
- Dividends = post-tax profit − retained; dividend tax with £500 allowance at 10.75% / 35.75% / 39.35% stacked on salary and other income.
- Best salary scanned in £500 steps up to the profit; State Pension year requires ≥ £6,500.
Worked example
Employer NI 15% × £7,570 = £1,136; taxable profit £76,295 → corporation tax about £16,468 (marginal relief); dividends £59,826. The salary attracts no income tax or employee NI; dividend tax is about £11,900 (£500 free, the rest of the basic band at 10.75%, the remainder at 35.75%). Total tax about £29,500 (32.8% of profit), take-home about £60,500. A £5,000 salary gives about £59,700 and all-salary about £56,500 — £12,570 is the best salary here, and it also secures a State Pension year.
Frequently asked questions
What is the best director salary for 2026/27?
£12,570 for most owner-directors — no income tax or employee NI, and the employer NI it triggers (about £1,136 for a sole director) is outweighed by the corporation tax saving; with the Employment Allowance it is the clear optimum.
Why not pay everything as dividends?
A salary up to the personal allowance is deductible for corporation tax and tax-free personally, and it earns a State Pension qualifying year; dividends are paid from taxed profit and taxed again.
Can a sole director claim the Employment Allowance?
No — a company whose only employee paid above the secondary threshold is a director cannot claim. Adding a second employee or director earning above £5,000 unlocks it.
How are dividends taxed in 2026/27?
£500 tax-free, then 10.75% within the basic-rate band, 35.75% in the higher band and 39.35% above £125,140 — on top of the corporation tax already paid.
Can my spouse take dividends?
If they genuinely own shares (ordinary shares with full rights), dividends on those shares are taxed on them — using their allowance and basic-rate band.
What records do I need for dividends?
Board minutes declaring each dividend and a dividend voucher for each shareholder; dividends must be paid from distributable reserves or they are unlawful.
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