# Salary vs Dividends 2026/27: The New Maths After the Dividend Tax Rise

Last updated: 9 June 2026

For 2026/27, the most tax-efficient structure for most UK limited company directors is still a salary of **£12,570** topped up with dividends — even though dividend tax rose on 6 April 2026 to **10.75%** (basic rate) and **35.75%** (higher rate). A director taking £50,270 of total income now pays **£3,999** in dividend tax, about £744 more than the same package cost in 2025/26. Dividends still beat additional salary at every income level because they avoid 8% employee NI and 15% employer NI — but the gap has narrowed, and employer pension contributions are now clearly the most efficient extraction method for money you don't need to spend.

## What Changed on 6 April 2026

Two percentage points were added to the ordinary and upper dividend rates at the start of this tax year — [the rise we covered when it was announced](/blog/dividend-tax-rising-april-2026):

| Band | 2025/26 | 2026/27 |
|------|---------|---------|
| Dividend allowance | £500 | £500 |
| Ordinary rate (basic) | 8.75% | **10.75%** |
| Upper rate (higher) | 33.75% | **35.75%** |
| Additional rate | 39.35% | 39.35% (unchanged) |

Everything else relevant to the salary-vs-dividends decision is frozen: personal allowance £12,570, basic rate band to £50,270, employer NI at 15% above £5,000, employee NI at 8% above £12,570, and Corporation Tax at 19% (small profits) to 25% (main rate).

## Step 1: The Salary Is Still £12,570

The salary question hasn't changed since last year, and [the full workings are here](/blog/optimal-directors-salary-2026-27). The short version: pay yourself £12,570.

- It uses your full personal allowance, so no income tax.
- It's at the employee NI threshold, so no employee NI.
- The company pays employer NI of £1,135.50 (15% on the £7,570 above the £5,000 secondary threshold) — but the salary and the NI are both Corporation Tax deductible, which more than claws that back.
- It's above the Lower Earnings Limit, so you bank a qualifying year for the State Pension.

If you have two or more employees (including a second director doing real work), the £10,500 Employment Allowance can wipe out the employer NI entirely, which makes £12,570 even more clearly correct.

## Step 2: Dividends on Top — the 2026/27 Worked Example

Take a director on the classic package: £12,570 salary plus dividends up to the higher-rate threshold.

| Item | Amount |
|------|--------|
| Salary | £12,570 |
| Dividends | £37,700 |
| **Total income** | **£50,270** |
| Income tax on salary | £0 (covered by personal allowance) |
| Dividend allowance | £500 at 0% |
| Dividend tax: £37,200 × 10.75% | **£3,999** |
| **Take-home** | **£46,271** |

The identical package in 2025/26 cost £3,255 in dividend tax. The rise costs this director **£744 a year**, with no change in behaviour. Above £50,270, each extra £1 of dividend now loses 35.75p — so [dividend timing](/blog/dividend-timing-strategy-complete-guide) around the threshold matters more than it did.

## Do Dividends Still Beat Salary? Yes — Here's the Margin

The fair comparison is what reaches your pocket from £100 of pre-tax company profit:

**Basic rate.** Dividend route: £100 less 19% Corporation Tax leaves £81; less 10.75% dividend tax leaves **£72.29**. Salary route: £100 covers £86.96 of gross salary (employer NI takes the rest); less 20% income tax and 8% employee NI leaves **£62.61**. Dividends win by about 10p in the pound.

**Higher rate.** Dividend route: £81 less 35.75% leaves **£52.04**. Salary route: £86.96 less 42% leaves **£50.44**. Dividends still win, but the margin is now under 2p in the pound — close enough that small details (your company's Corporation Tax rate, Employment Allowance eligibility) can flip it.

Note the Corporation Tax wrinkle: these figures assume the 19% small profits rate. If your company's profits put it in the 25% band or marginal relief zone, the dividend route's advantage shrinks further at the margin, because dividends are paid from post-CT profit while salary reduces it. [Check which rate applies to you](/blog/corporation-tax-rates-thresholds-uk-2026).

## The Third Option Beats Both: Pension Contributions

For money you don't need to live on, an employer pension contribution now wins by a distance. It's paid gross from the company, fully Corporation Tax deductible, attracts no NI on either side and no dividend tax — 100% of the contribution lands in your pension (taxed only on the way out, decades later, usually at lower rates with 25% tax-free). With the dividend higher rate at 35.75%, the case for [making employer contributions before drawing higher-rate dividends](/blog/pension-contributions-limited-company-uk) has never been stronger.

## What To Actually Do for 2026/27

Run payroll at £12,570 (£1,047.50/month). Take dividends up to £50,270 of total income if you need it — budgeting £3,999 for the January 2028 tax bill, and watching [payments on account](/blog/self-assessment-payment-on-account-2026) if your bill exceeds £1,000. Divert anything above that to employer pension contributions first, and only then take higher-rate dividends. And document every dividend properly — [board minutes and vouchers](/blog/how-to-pay-yourself-dividends-uk) — because an undocumented dividend that HMRC reclassifies is taxed far worse.

If you'd rather not run this spreadsheet every April: AccountsOS tracks your salary, dividends and distributable reserves in real time, and Finn will tell you exactly how much you can take and what the tax cost is before you press pay.