Salary vs Dividend Optimiser 2026/27
The most tax-efficient way to pay yourself from a limited company, priced on the April 2026 dividend rates. Every candidate salary is shown, so you can audit the recommendation rather than take it on trust.
Optimise your split
Before your salary and before corporation tax, after every other business expense.
A single-director company whose only employee is that director cannot claim the £10,500 Employment Allowance. Claiming it when you are not entitled is the most common error on this calculation.
A director needs annual earnings of at least £6,708 in 2026/27 to bank a qualifying year for the state pension. Below that the year does not count, however little tax you pay.
Enter your annual company profit — a number above zero.
Each row takes the same company profit and pays it out entirely, changing only the salary. The recommended row is shaded green. A row can only show a positive figure against the recommendation if it drops below the lower earnings limit and loses your state-pension qualifying year — those rows are marked. Where a row is within a few hundred pounds of the best, treat the difference as noise and choose on the other merits.
| Salary strategy | Salary | Dividends | Tax & NIC | Net in pocket | vs best |
|---|
Company money on top, your money underneath. Every line is the recommended split, to the penny.
How the optimiser works
Paying yourself from your own company is a two-stage problem, and the two stages pull in opposite directions.
- Salary is a company expense. Both the salary and the employer's National Insurance on it come off the profit before corporation tax, so the company saves tax at 19%, 25% or the 26.5% marginal-relief rate. But the salary attracts 15% employer NIC above the £5,000 secondary threshold, plus income tax and 8% employee NIC in your hands once it passes £12,570.
- Dividends are not a company expense. They come out of profit that has already paid corporation tax. In your hands they carry no National Insurance and are taxed at 10.75% inside the basic-rate band, 35.75% in the higher-rate band and 39.35% above £125,140 of taxable income.
The calculator prices every candidate salary from £0 up to the largest the company could afford, works out the corporation tax on what is left, pays the whole of the rest out as dividends, and then taxes you on the result. The winner is whichever salary leaves the most cash in your hand. Because the two stages cross over at several thresholds, the answer is a genuine optimum rather than a rule of thumb — and at a few profit levels it is not £12,570.
Why £12,570 is usually the answer
- It is covered by the personal allowance. £12,570 of salary, no income tax.
- It sits exactly on the primary threshold. Employee NIC starts at £12,570, so a salary at that level pays none.
- It banks a qualifying year. Anything at or above the £6,708 lower earnings limit counts towards the state pension; £12,570 clears it comfortably.
- The employer NIC is cheap and deductible. £12,570 − £5,000 = £7,570 at 15% is £1,135.50. That cost is itself deductible, so at the 19% corporation tax rate it nets down to about £920.
- The alternative is dear. The dividends you give up to fund that salary have already borne corporation tax and would then be taxed again at 10.75% or 35.75%.
The Employment Allowance trap
The Employment Allowance is £10,500 for 2026/27 and it wipes out employer NIC on a salary of up to £75,000. It would change this calculation completely — so it matters that most contractor companies cannot claim it. A company is excluded where the director is the only employee paid above the secondary threshold. Put a second person on the payroll above £5,000 and the company qualifies, and the optimal salary can jump from £12,570 to the top of the basic-rate band or beyond. Switch the payroll question above and watch the recommendation move.
What changed on 6 April 2026
- Dividend ordinary rate 8.75% → 10.75%, upper rate 33.75% → 35.75%.
- Dividend additional rate unchanged at 39.35%, and the dividend allowance is still £500.
- The section 455 charge on an overdrawn director's loan follows the upper rate: 35.75% for loans made on or after 6 April 2026. Older loans keep 33.75%.
- Nothing moved on the salary side: personal allowance £12,570, higher-rate threshold £50,270, employee NIC 8% and 2%, employer NIC 15% above £5,000, Employment Allowance £10,500, corporation tax 19% and 25% with marginal relief between £50,000 and £250,000. The personal allowance and the rate thresholds are now frozen to 5 April 2031.
Because the rise hits dividends and not salary, it nudges the arithmetic marginally towards salary — but not far enough to move the recommendation for a typical contractor company. It does make the bill bigger: use the 2025/26 switch to see by how much.
What this calculator does not do
- Pension contributions. An employer pension contribution is deductible for corporation tax, free of both employer and employee NIC, and the salary-sacrifice NIC exemption stays uncapped until 6 April 2029. For most directors it beats both salary and dividends, and it is not modelled here.
- Retained profit. The model pays out every penny in the year. Leaving profit in the company, or taking it out later, changes the answer.
- Other income. Rent, interest, a pension in payment or a second employment all stack under your dividends and can push them into a higher band.
- Scotland. Dividend rates are UK-wide, but Scottish taxpayers use Scottish bands for salary, which shifts where the dividend rate changes. Student loan deductions and associated companies are also excluded.
For most directors it is £12,570. It is covered by the personal allowance, it sits exactly on the £12,570 primary threshold so no employee National Insurance is due, it banks a qualifying year for the state pension, and both the salary and the £1,135.50 of employer NIC it triggers are deductible against corporation tax. The balance comes out as dividends at 10.75% and 35.75%.
It is not universal. If your company can claim the Employment Allowance, or your profit is large enough that dividends are landing in the 39.35% band, a higher salary can win. The comparison table above prices each option so you can see the gap rather than trust the headline.
Dividends carry no National Insurance at all and are taxed at 10.75% in the basic-rate band against 20% income tax plus 8% employee NIC on salary. On top of that, salary above £5,000 costs the company 15% employer NIC.
The offset is that dividends are paid out of profit that has already borne corporation tax at between 19% and 26.5%, while salary and employer NIC are deductible. Stack the two effects and salary wins up to the personal allowance, dividends win through the basic-rate band, and it tightens again at the top. That is why the answer is a split.
The dividend allowance is £500, unchanged for 2026/27. It is a nil-rate band, not a deduction: the first £500 of dividends is charged at 0%, but it still uses up £500 of your basic-rate band — or your higher-rate band, if that is where it falls. Treating it as a deduction understates the bill.
Any personal allowance your salary has not used also covers dividends tax-free, which is why a salary below £12,570 shelters more dividends but costs you elsewhere.
Not if you are the sole director and the only person on the payroll. That company is excluded, so its employer NIC is payable in full at 15% above the £5,000 secondary threshold. The allowance is £10,500 for 2026/27 and the old £100,000 prior-year NIC cap was removed in April 2025, but neither helps a one-person company.
With a second employee paid above the secondary threshold the company can claim, employer NIC disappears on salary up to £75,000, and the optimal salary moves — often a long way. Use the payroll switch to model it honestly rather than assuming the allowance.
From 6 April 2026 the dividend ordinary rate rose from 8.75% to 10.75% and the upper rate from 33.75% to 35.75%. The additional rate did not move: it is still 39.35%. The dividend allowance is still £500.
The salary side is unchanged — personal allowance £12,570, higher-rate threshold £50,270, employee NIC 8% and 2%, employer NIC 15% above £5,000 — and the thresholds are frozen to 5 April 2031. The section 455 charge on a director's loan made on or after 6 April 2026 tracks the upper rate at 35.75%.
This calculator provides arithmetic calculations only, on the figures you enter. It assumes one company with no associated companies, a 12-month accounting period, rest-of-UK income tax bands, no other personal income, no student loan and no pension contributions. Verify with HMRC guidance on tax on dividends or a qualified accountant before you set your payroll.