Salary vs dividends calculator

How the calculation works

The money leaves the company in two different ways and gets taxed under two different systems, which is the whole reason the question is worth asking.

The salary route.A salary is a business expense, so it reduces the profit that corporation tax is charged on. But the company pays employer's National Insurance at 15% on anything above £5,000, and you pay income tax and employee's National Insurance on it personally.

The dividend route. Dividends come out of post-tax profit, so the company has already paid corporation tax on the money. But there is no National Insurance at either end, and dividend tax rates sit below the equivalent income tax rates.

The efficient answer is almost always a salary large enough to use your personal allowance and protect your state pension record, with everything else taken as dividends. Where exactly that line falls depends on your profit, which is what the calculator above works out.

What this does not cover

• Other income. Rental income, another employment, or a pension all stack underneath and change your marginal rate.
• Pension contributions. Employer contributions are deductible and carry no NI, and for many directors they beat both routes. Worth a conversation with your accountant.
• Scotland. Scottish income tax bands differ, though dividend tax and National Insurance do not.
• Associated companies. The corporation tax thresholds are divided between associated companies, which changes the marginal relief calculation.
• Student loans, benefits in kind, and salary sacrifice. All of which move the answer.

This is a guide for a conversation, not a substitute for one. If you are a practice and your clients keep asking this question, the useful move is to have the answer on your own website.

Common questions

Why is a low salary plus dividends usually more efficient? Dividends carry no National Insurance, for either the company or the individual. A salary attracts employer's NI at 15% above the secondary threshold and employee's NI at 8%. Salary is deductible against corporation tax and dividends are not, so the calculation is a trade-off, but for most director-level profits the NI saving outweighs the lost deduction.

Should I take a salary at all? Usually yes. A salary at or above the lower earnings limit protects your state pension record for the year, and a salary up to the personal allowance uses tax-free income that dividends would otherwise be taxed on. Taking no salary at all is rarely optimal.

Does this account for the dividend rate rise in April 2026? Yes. The ordinary dividend rate rose to 10.75% and the upper rate to 35.75% from April 2026. The calculator uses the current 2026/27 figures throughout.

Can I claim the Employment Allowance? Not if you are the only employee paid above the secondary threshold and you are also a director, which is the usual one-person company. If you have other employees you may be eligible, and the answer changes. This calculator deliberately assumes you cannot claim it.

Built by Charged Studio. We build tools like this for professional services firms who want their website to do something useful. More on that in our guide to website design for accountants.

Rates: 2026/27 tax year, England, Wales and Northern Ireland. Checked against HMRC guidance on 28 July 2026. This is a guide, not advice. Figures assume a single company with no associated companies and a full twelve-month accounting period. Scottish income tax bands differ. Always check with your accountant before acting.

Want this on your own website? We build these for practices who want their site to do something useful rather than sit there. Ask us about it.