Director Salary vs Dividend
Optimization Calculator
Find your optimal tax-efficient mix. Our engine handles Corporation Tax Marginal Relief, Student Loan nuances, and the specific Director's NIC rules that generic calculators miss.
Configuration
Enter your limited company details
Claim £10,500 NIC relief
Apply Scottish rates
Estimated Take Home Pay
£39,989
Effective Tax Rate: 6.1%
Total Tax Paid
£22,000
Personal Tax
Company Tax
How the Calculator Works
Unlike simple "flat rate" tools, this calculator runs a full tax simulation for Limited Company Directors.
1. Define Inputs
Select your region (Scotland/UK), Tax Year, and Profit level. Configure Student Loans and potential Pension contributions.
2. Engine Run
We deduct expenses, Calculate Corporation Tax (with Marginal Relief), and apply the specific Director's NIC Annual Earnings Period.
3. Optimize
See your exact Take-Home Pay, Effective Tax Rate, and see how much the visible "Dividend Tax" is actually costing you.
The most accurate salary and dividends tax calculator UK for the 2025/26 tax year.
Why Salary vs Dividends?
Personal Allowance & Dividend Allowance
Every UK individual has a Personal Allowance of £12,570 (frozen until 2028). Additionally, you get a tax-free Dividend Allowance of £500.
The most efficient strategy typically involves paying a salary up to the relevant National Insurance threshold to secure your "stamp" for State Pension, without paying unnecessary Employer NICs.
Director's NICs
Directors are subject to an Annual Earnings Period for Class 1 National Insurance.
For 2025/26, the Employer (Secondary) Threshold has dropped to £5,000. This means salaries above £5,000 now attract 15% Employer NICs unless you are eligible for the Employment Allowance. This drastically changes the "Optimal Salary" math compared to last year.
Upcoming Changes in 2026
The Autumn Budget announced a 2 percentage point increase in Dividend Tax rates from April 2026. Basic rate moves to 10.75% and Higher rate to 35.75%. Use our calculator to toggle to "2026/27" and see the impact on your future take-home pay.
Optimal Salary Strategies for 2025/26
£12,570 Salary (Standard)
If you can claim the Employment Allowance (EA), this remains the gold standard. You use your full Personal Allowance tax-free, and the EA wipes out the Employer NIC bill.
£9,100 Salary
Previously popular to avoid NICs. However, with the Secondary Threshold dropping to £5,000, this middle-ground offers fewer advantages in 2025/26.
£5,000 Salary
If you are a sole director (cannot claim EA), paying £12,570 now costs you ~£1,135 in Employer NIC. Lowering salary to £5,000 avoids this tax, but leaves Personal Allowance unused (wasted) if you don't have other income.
Frequently Asked Questions
Do directors pay National Insurance on dividends?
No. Dividends are exempt from National Insurance. This is one of the primary tax advantages of operating through a limited company vs being a sole trader.
Can I pay myself dividends even if the company has no profits?
No. You can only pay dividends from 'distributable profits' (accumulated profit after tax). If you pay dividends when the company is in a loss, it is illegal (ultra vires) and may be reclassified as a Director's Loan.
How do student loans affect my take-home pay?
Dividends count as 'unearned income' for Student Loans. If your total income (Salary + Dividends) exceeds the threshold (e.g., £27,295 for Plan 2), you pay 9% on the excess via Self Assessment.
What is the dividend allowance?
For the 2025/26 tax year, the first £500 of dividend income is tax-free. This has been reduced significantly from previous years (£2,000).
About This Tool
This calculator provides estimates based on specific tax legislation for the UK. Rates are sourced directly from HMRC Guidance 2025/26.