About this tool
Salary or dividends for a limited company director
Directors of UK limited companies face a choice their employed friends never think about: how to get money out of a company they own. Take it as salary through PAYE and it is deductible for Corporation Tax, but it attracts Income Tax and National Insurance on both sides. Take it as a dividend from post-tax profits and there is no National Insurance at all, but the money has already been through Corporation Tax before it reaches you. This calculator runs the same gross figure through both routes on 2026/27 rates and shows the take-home pay alongside the true cost to the company.
How the calculation works
For the salary route, the company pays employer National Insurance at 15% on earnings above the £5,000 secondary threshold. You pay employee National Insurance at 8% between £12,570 and £50,270 and 2% above that, then Income Tax at 20% up to £50,270, 40% up to £125,140 and 45% beyond, with the £12,570 personal allowance tapering away at £1 for every £2 of income over £100,000. These are England, Wales and Northern Ireland rates; Scottish taxpayers face a different set of bands.
For the dividend route, profits first meet Corporation Tax: 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief creating an effective 26.5% rate on the slice in between. What remains can be declared as a dividend, and you then pay dividend tax at 10.75%, 35.75% or 39.35% depending on your band (2026/27 rates), after the £500 dividend allowance. The calculator solves backwards from the dividend you enter to the pre-tax profit required, so the company-cost figures are genuinely comparable.
A worked example
Take a director who wants £60,000 gross. Paid as salary, the company spends about £68,250 once employer NIC of £8,250 is added. You pay roughly £3,210 in employee NIC and £11,432 in Income Tax, leaving about £45,400 in your bank account. Paid entirely as dividends with no salary, distributing £60,000 takes about £76,500 of pre-tax profit once Corporation Tax in the 26.5% marginal-relief band is covered; £12,570 is then covered by the personal allowance and £500 by the dividend allowance, and you pay 10.75% up to the £50,270 basic-rate limit and 35.75% above it — roughly £7,500 in total — leaving about £52,500. The dividend wins on take-home in this scenario, but it comes with a bigger drain on company profit and zero National Insurance record.
Weighing the two options
Salary protects your entitlements. Paying yourself at least at the Lower Earnings Limit keeps your National Insurance record intact, which matters for the State Pension and for contributory benefits such as Maternity Allowance and Employment and Support Allowance. Salary is deductible against Corporation Tax, gives you the pension annual allowance headroom to make relevant earnings-based contributions, and gives mortgage lenders the payslips they actually want to see. It is simply more expensive because National Insurance sits on both sides of it.
Dividends are usually the cheaper way to extract profit once the basics are covered, but the rules are stricter than many directors realise. A dividend can only be paid from distributable reserves, must be properly declared with board minutes and a dividend voucher, and paying one when the company has no retained profit makes it unlawful and repayable. Dividends also give no National Insurance credits, no statutory sick pay entitlement and no pensionable earnings.
Practical guidance
The classic approach is a modest salary set around the National Insurance thresholds, topped up with dividends declared through the year as profits allow. If your company qualifies for the Employment Allowance (£10,500 in 2026/27), a larger salary can become more attractive than this simulator suggests, so check eligibility with your accountant. Watch the £100,000 mark carefully too: the personal allowance taper creates an effective 60% marginal rate on that band, which is often best managed with an employer pension contribution rather than a bigger dividend. And if you are a Scottish taxpayer, rerun the numbers with the Scottish bands before deciding.
Indicative simulation based on 2026/27 UK tax rules. It does not replace advice from an accountant or tax adviser.