Salary vs Dividends Calculator UK 2025/26

Salary vs dividends calculator UK 2025/26 — find the optimal salary/dividend split for limited company directors. Maximi

Quick answer: For a one-director Ltd Co taking £50,000 total in 2025/26, the optimal split is £12,570 salary + £37,430 dividends = take-home £42,930 (vs £39,520 as PAYE — saves £3,410/year).
Mustafa Bilgic
Reviewed by Mustafa Bilgic · UK Calculator Editor ·

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Limited company directors can choose how to extract profit — pure salary, pure dividends, or a mix. The optimal split depends on dividend allowance, personal allowance, NI thresholds, and corporation tax. This calculator finds the most tax-efficient split for 2025/26.

How salary vs dividends calculator works in 2025/26

The 2025/26 mathematical optimum for most directors is £12,570 salary (uses full Personal Allowance, qualifies for state pension via NI credit even at 0% NI) plus dividends.

Why £12,570 salary?

  • Uses full Personal Allowance — £12,570 of company profit converted to tax-free personal income
  • Salary is corp-tax-deductible at 25% (or 19% for small profits) — so £1 salary saves 19-25p corp tax
  • NI credit for state pension qualifying year (you reach Lower Earnings Limit £6,500 even at low salary)
  • Employer NI on the bit above £9,100 secondary threshold = £479 (worth paying for the corp tax + PA benefit)

Why dividends after that?

  • £500 Dividend Allowance — first £500 dividends tax-free
  • Basic rate dividends taxed at 8.75% (vs 28% PAYE blended)
  • Higher rate dividends 33.75% (vs 42% PAYE blended)
  • Additional rate dividends 39.35% (vs 47% PAYE blended)
  • No NI on dividends

Worked example: Director extracting £30k total, £12,570 salary + £17,430 div

Salary uses PA, no income tax/NI. Employer NI £479. Dividends: £500 allowance + £16,930 at 8.75% = £1,481. Total tax £1,960. Take-home £28,040 / £30k = 93.5%.

Gross: £30,000 → Take-home: £28,040.00/year (£2,336.67/month)

Worked example: Director £75k total, £12,570 salary + £62,430 div

Salary £12,570 (no IT/NI). Employer NI £479. Dividends: £500 free + £37,200 basic (8.75% = £3,255) + £24,730 higher (33.75% = £8,346). Total dividend tax £11,601. Take-home £63,399 / £75k = 84.5%. PAYE equivalent £52,580 / £75k = 70.1%.

Gross: £75,000 → Take-home: £63,399.00/year (£5,283.25/month)

Worked example: Director £150k, £12,570 salary + £137,430 div

PA tapered (income >£100k). PA = £12,570 - (162,570 - 100,000)/2 = £0 after taper. Effective rate ≈70-75% take-home, vs 65% PAYE. Saves ~£8-10k vs pure salary.

Gross: £150,000 → Take-home: £105,000.00/year (£8,750.00/month)

Frequently asked questions

Why not take £9,100 salary instead of £12,570?
£9,100 avoids ALL employer NI but loses £3,470 of personal allowance use. Net cost £3,470 × marginal rate — usually worse than paying £479 employer NI to gain £3,470 of tax-free salary. £12,570 wins by £200-£700/year for most directors.
Should I take a bigger salary if I want a mortgage?
Yes — many lenders consider only salary, not dividends, for mortgage affordability. If you need a £200k mortgage, you may need £40-50k salary regardless of tax efficiency. Dividends often disregarded by mainstream lenders.
Are dividends affected by NI?
No — dividends are NOT subject to National Insurance. This is the main reason salary+dividends saves so much vs pure salary (which attracts 8% employee NI + 13.8% employer NI).
What's the corporation tax cost of paying salary?
Salary IS corp-tax-deductible (reduces company profit). At 25% main rate: £1 salary saves £0.25 corp tax. At 19% small profits: saves £0.19. Dividends are NOT deductible — paid from POST-corp-tax profit.
Does the £500 dividend allowance use up my basic rate band?
Yes (subtle but important): the £500 allowance still uses up £500 of your basic rate band. So a director with £42,000 dividends has £500 free, then £37,200 in basic rate band (£37,700 - £500), then any remainder at higher rate.
Can I salary sacrifice to a pension as a director?
Yes — Ltd Co employer contributions to a director's pension are corp-tax-deductible AND no NI. Up to £60,000/year (Annual Allowance) including any employee contributions. Most efficient way to extract money from a Ltd Co.
Should I take less salary if I have a high pension contribution?
Possibly — if employer pays £40k pension contribution, your "personal" income from the company is only salary + dividends. Optimal split changes when pension involved. Run scenarios in this calculator to test.

Official UK Sources

Last reviewed: May 2026 against HMRC 2025/26 rates.

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