Dividend vs Salary Optimisation Calculator 2026
Calculate the optimal salary and dividend split for limited company directors. Compare tax and NI costs of salary-only vs salary+dividend extraction strategies for 2025/26.
Salary + Dividend Optimisation Calculator (Limited Company Director)
Most director-shareholders extract profits using a combination of salary (to personal allowance) and dividends. This calculator compares strategies for 2025/26.
Frequently Asked Questions
What is the optimal salary for a limited company director in 2026?
Most accountants recommend a salary of £12,570/year (the personal allowance) for 2025/26. This is tax-free for the director, saves corporation tax as a deduction, but note employer NI at 15% applies to salary above £9,100 (increased from 13.8% in April 2025).
How much is the dividend allowance in 2026?
£500/year for 2024/25 and 2025/26. This was cut from £2,000 in 2022/23 to £1,000 in 2023/24, then to £500 in 2024/25. Dividends above £500 are taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional) — reduced by personal allowance first.
What is the benefit of paying salary vs dividends?
Salary: reduces corporation tax, provides pensionable earnings, counts toward State Pension. Dividends: no NI on dividends (for director or company), lower tax rates than salary at equivalent income levels, flexible timing. Combination is usually optimal.
What is corporation tax in 2026?
19% for profits up to £50,000 (small profits rate). 25% for profits over £250,000. Marginal relief applies between £50,000 and £250,000 (effective marginal rate 26.5% in the tapered band). Applies to company profits after director salary/expenses.
Can I put money into a pension instead of taking salary or dividends?
Yes — employer pension contributions (from the company) reduce corporation tax and avoid NI. There is no annual limit on employer contributions, but they must be 'wholly and exclusively for trade'. This is often the most tax-efficient extraction method for higher earners.
Does the employer NI change affect director salary strategy?
Yes — employer NI increased from 13.8% to 15% in April 2025 (also, the secondary threshold fell from £9,100 to £5,000 in some interpretations — check the latest HMRC guidance). The Employment Allowance (£10,500 from April 2025) covers the employer NI for eligible companies.
What is the Employment Allowance?
The Employment Allowance allows eligible businesses to reduce their employer NI bill by up to £10,500/year (increased from £5,000 in April 2025). One-person companies where the sole director is also the only employee cannot claim it. Companies with at least one non-director employee can claim.
Should I retain profits in the company?
Retaining profits in the company can defer tax — corporation tax (19-25%) is lower than income tax + NI on immediate extraction. However, retained profits are at risk if the company fails and cannot be taken out tax-free later without paying dividend or capital gains tax.