Log in
2026-27 Tax Year

Director Salary vs Dividends Calculator

Find the optimal salary and dividend split to minimize your tax bill. Based on current HMRC rates for UK limited company directors.

Enter your expected company profit before paying yourself

Optimal Strategy

Recommended Salary

£12,570

Dividends

£37,499

Total Take-Home

£46,091

Effective tax rate: 23.2% | Total tax: £13,909

Compare Different Salary Levels

SalaryDividendsTotal TaxTake-HomeRate
£12,570Best
£37,499£13,909£46,09123.2%
£25,000
£25,920£15,331£44,66925.6%
£35,000
£16,605£16,615£43,38527.7%
£50,270
£2,381£18,577£41,42331.0%
£5,000
£41,250£18,893£41,10731.5%
£0
£45,000£21,484£38,51635.8%

Tax Breakdown (Optimal Strategy)

Corporation Tax£8,796
Employer NI£1,136
Employee NI£0
Income Tax£0
Dividend Tax£3,977
Total Tax£13,909

Important Disclaimer

This calculator provides estimates based on 2026-27 tax rates. Your actual tax situation may vary based on other income, pension contributions, student loans, and other factors. Always consult a qualified accountant for personalized advice.

Why Most Accountants Recommend £12,570

The Sweet Spot

  • Equals the Personal Allowance (no Income Tax)
  • Above NI threshold (builds state pension)
  • Employer NI cost manageable (approx £1,136/year)
  • Qualifies for certain tax credits/benefits
  • Remaining profits taxed at lower dividend rates

When to Consider Higher Salary

  • Mortgage applications (lenders prefer salary)
  • Maximizing pension contributions
  • Higher profits (marginal relief applies)
  • Claiming tax relief on pension contributions
  • Employment Allowance available (£10,500)
Common Questions

Frequently Asked Questions

What is the personal allowance for 2026-27?

The personal allowance for the 2026-27 tax year is £12,570. This is the amount you can earn before paying any Income Tax. The personal allowance has been frozen at this level since 2021 and is expected to remain frozen until at least 2028.

Why do most directors pay themselves £12,570 salary?

£12,570 is the 'sweet spot' because it matches the personal allowance (meaning no Income Tax), it's above the National Insurance threshold (so you build state pension entitlement), and the employer NI cost is around £1,136 per year (15% on earnings above £5,000). The rest of your income can be taken as dividends which are taxed at lower rates.

How much tax will I pay on dividends as a director?

Dividend tax rates for 2026-27 are: 10.75% for basic rate taxpayers (income up to £50,270), 35.75% for higher rate taxpayers (income £50,271-£125,140), and 39.35% for additional rate taxpayers (over £125,140). These rose from 8.75%/33.75% in 2025/26. The first £500 of dividends is tax-free under the dividend allowance.

What is the optimal salary and dividend split for UK directors?

For most UK limited company directors, the optimal strategy is to pay a salary of £12,570 (matching the personal allowance) and take the rest as dividends. This minimizes National Insurance contributions while still building state pension entitlement. However, the optimal split varies based on your total company profit - use our calculator above to find your specific optimal mix.

Should I pay myself a higher salary for mortgage applications?

Yes, many mortgage lenders prefer to see higher salary income rather than dividends when assessing affordability. If you're planning to apply for a mortgage, you may want to pay yourself a higher salary (up to £50,270 for basic rate tax) in the year before your application, even if it means paying slightly more tax.

What are the National Insurance rates for company directors in 2026-27?

For 2026-27, employee NI is 8% on earnings between £12,570 and £50,270, and 2% above that. Employer NI is 15% on earnings above £5,000. Directors also benefit from annual calculation, meaning NI is calculated across the full year rather than each pay period.

Let AccountsOS Handle the Math

Get personalized salary and dividend recommendations based on your actual company finances.

Start Your Free Trial