Is it more tax-efficient to take salary or dividends?

For most limited-company directors a small salary topped up with dividends is the most tax-efficient mix, because dividends carry no National Insurance and are taxed at lower rates than salary. This calculator compares that split against taking everything as salary.

What is the most tax-efficient director's salary for 2026/27?

A common tax-efficient choice is a salary at the £12,570.00 Personal Allowance — income-tax-free, with the small employer's NI it triggers outweighed by the Corporation Tax the salary saves. You can also model a £5,000.00 or £0 salary.

What are the dividend tax rates for 2026/27?

After a £500.00 dividend allowance, dividends are taxed at 10.75% (basic rate), 35.75% (higher rate) and 39.35% (additional rate), on top of your salary.

Can a sole director claim the Employment Allowance?

No — a company whose only employee is a single director cannot claim the Employment Allowance, so this calculator does not apply it.

Dividend vs Salary Calculator (2026/27)

Salary and dividends breakdown
Company profit (before salary)	£60,000.00
Director's salary	£12,570.00
Employer's NIC on salary	£1,135.50
Corporation Tax	£8,795.96
Dividends drawn	£37,498.54
Income tax on salary	£0.00
Employee's NIC on salary	£0.00
Dividend tax	£3,977.34
Your take-home	£46,091.20

How this is calculated

As a limited-company director you can pay yourself with a mix of salary (a deductible company cost) and dividends (paid from profit after Corporation Tax). Because dividends aren't subject to National Insurance and are taxed at lower rates than salary, a small salary topped up with dividends is usually the most tax-efficient way to draw money — this tool compares that split against taking the whole profit as salary, and shows what you keep after every tax.

The waterfall, step by step

Salary is paid first and is deductible, reducing the profit charged to Corporation Tax.
Employer's National Insurance (15% above £5,000.00) is added as a company cost and is also deductible.
Corporation Tax is charged on the profit that's left (see the rates below).
Dividends are drawn from the post-tax profit and taxed on your personal return, on top of your salary.
Your take-home is salary minus income tax and employee NIC, plus dividends minus dividend tax.

Assumptions

A single-director company; the Employment Allowance is not claimed (a sole director-employee cannot).
The recommended salary is set to the Personal Allowance (£12,570.00) — income-tax-free, and the small employer's NIC it triggers is outweighed by the Corporation Tax the salary saves. You can switch to the £5,000.00 (no employer NIC) or £0 salary options.
No pension contributions, no other personal income, no other reliefs. England, Wales & Northern Ireland rates (Scotland differs).
Corporation Tax uses Marginal Relief with the standard fraction and assumes no associated companies.

Rates used (2026/27)

Personal Allowance: £12,570.00, tapered away above £100,000.00.
Income tax: 20% basic to £50,270.00, 40% higher to £125,140.00, 45% additional above.
Dividend tax: £500.00 allowance, then 10.75% / 35.75% / 39.35% by band.
Corporation Tax: 19% up to £50,000.00, 25% from £250,000.00, Marginal Relief between.

Sources

Figures are based on published HMRC rates for the 2026/27 tax year — see gov.uk/tax-on-dividends, gov.uk/income-tax-rates and gov.uk/corporation-tax-rates.

This is an illustration for information only — not tax, accounting or financial advice. Your own position may differ; check with an accountant before acting.

Information and estimates only — not tax or financial advice. Figures are based on published HMRC rates; check gov.uk or an accountant for your situation.