Director Salary Calculator UK 2026

Director Salary & Dividend Calculator 2025/26

Company Profit Before Salary (£)

£

Other Personal Income (£)

£

Number of Directors

Personal Tax Situation

Select your preferred salary strategy:

Option A: Salary £12,570

Option B: Salary £9,100 (LEL)

Strategy A – Salary at Personal Allowance

Total Take-Home
-

Effective Tax Rate

-

NI Saving vs PAYE

-

Salary Taken

-

Dividend Taken

-

Corporation Tax

-

Comparison: Ltd Director vs Equivalent PAYE Employee

The Three Optimal Director Salary Strategies

Option A – Salary at Personal Allowance: £12,570

The director draws a salary equal to the Personal Allowance. Result: no income tax and no NI on the salary (assuming the company is not subject to employer's NI above £9,100 or can claim Employment Allowance). Remaining profits taken as dividends. Most efficient for sole-director companies where Employment Allowance is not available.

Option B – Salary at Lower Earnings Limit: £9,100

The director draws a salary at the Lower Earnings Limit (LEL). This preserves NI credits for the State Pension entitlement at zero NI cost. Below the Secondary Threshold (£9,100), the company pays no employer's NI. Below the Primary Threshold, the director pays no employee's NI. This is optimal where preserving NI credits matters.

Option C – No Salary (Dividends Only)

Some directors take no salary and extract all profits as dividends. This loses NI credit entitlement and may look unusual to lenders (e.g., for mortgage applications), but is otherwise efficient if NI credits are not a concern (e.g., director already has 35 qualifying years for State Pension).

Corporation Tax 2025/26

Profit Level	Tax Rate	Notes
Up to £50,000	19%	Small Profits Rate
£50,001 – £250,000	19%–25%	Marginal Relief applies
Above £250,000	25%	Main Rate

The director's salary is deducted before Corporation Tax is calculated. This means paying a salary reduces the Corporation Tax bill, but the salary itself is subject to income tax and NI if above the relevant thresholds.

Pension Contributions: Tax-Free Profit Extraction

One of the most powerful tools for directors is extracting profits via employer pension contributions:

Contributions made by the company are a deductible business expense, reducing profits before Corporation Tax.
No income tax or NI on the contribution (for the director personally).
Pension annual allowance: up to £60,000 per tax year (2025/26), subject to adjusted income rules.
Money Purchase Annual Allowance (MPAA) £10,000 if you've already accessed pension flexibly.

Example: A director with £100,000 profit instructs the company to pay £20,000 employer pension contribution. Corporation Tax is calculated on £80,000 instead of £100,000, saving £3,800 in tax (at 19%) while adding £20,000 to the director's pension fund.

Marriage Allowance & Income Splitting

If the director's spouse has lower income, several strategies can reduce the overall household tax burden:

Marriage Allowance: Transfer £1,260 of unused Personal Allowance from lower-earning spouse, saving £252/year.
Spouse as director/employee: Pay spouse a genuine salary for services they provide to the business.
Spouse as shareholder: Issue shares allowing dividend payments using the spouse's Personal Allowance and Dividend Allowance. Must be commercially genuine.
Second director strategy: With 2 directors, both can use their Personal Allowances (2 × £12,570) and Dividend Allowances (2 × £500).

Frequently Asked Questions

What is the optimal director salary for 2025/26?

The most common optimal salary is £9,100 (Lower Earnings Limit) or £12,570 (Personal Allowance). At £9,100, the director preserves NI credits for State Pension at zero cost. At £12,570, there is no income tax or NI, but this only works without triggering employer NI if the company has no Employment Allowance entitlement or the director is the sole employee.

How much can a director take as dividends in 2025/26?

A director can take dividends up to the amount of distributable profit the company has. The 2025/26 Dividend Allowance is £500 tax-free. Above that, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) depending on total income.

Do directors pay NI on dividends?

No. Dividends are not subject to National Insurance contributions (neither employee nor employer NI). This is one of the key advantages of taking income as dividends rather than salary for limited company directors.

Can a director's spouse be a shareholder to save tax?

Yes, if your spouse has lower income, they can hold shares and receive dividends using their Personal Allowance and Dividend Allowance. This is known as income splitting. However, HMRC may challenge arrangements under the settlements legislation if the share allocation is not commercially genuine.

Can the company pay into my pension to reduce Corporation Tax?

Yes. Employer pension contributions made by the company are a deductible business expense before Corporation Tax is calculated. This is one of the most tax-efficient ways to extract profits, particularly for higher-rate taxpayers. The annual allowance is £60,000 for 2025/26.

What Corporation Tax rate does my company pay?

For 2025/26: profits up to £50,000 pay the Small Profits Rate of 19%. Profits between £50,001 and £250,000 attract Marginal Relief, with an effective rate rising from 19% to 25%. Profits above £250,000 pay the Main Rate of 25%.

Is it better to be a PAYE employee or a director of my own company?

For higher earners, being a director of your own limited company is typically more tax-efficient. A PAYE employee pays income tax plus employee NI (8% basic, 2% higher) and the employer pays 13.8% employer NI. A director taking salary at £9,100 plus dividends pays significantly less overall, though there are compliance costs and administration to consider.