A salary and dividend calculator answers one question: for a given profit, what does each way of paying the director cost once the company's tax and the director's tax are both counted. Salary is deductible for corporation tax but carries income tax, employee's National Insurance and the company's employer's National Insurance. A dividend carries none of the National Insurance and a lower tax rate, but comes out of profit that has already borne corporation tax. Neither is cheaper in every case, and the answer moves with the corporation tax band, the director's income tax band and the thresholds. This page sets out the arithmetic as gov.uk publishes the rates for 2026 to 2027, explains why the common split looks the way it does, and points to the free ltd company tax calculator on this site, which works it on your own numbers.
What a pound of salary costs, and what a pound of dividend costs
Salary above the personal allowance costs the director 20 percent income tax in the basic band and 8 percent employee's National Insurance above the primary threshold, and costs the company 15 percent employer's National Insurance above the £5,000 secondary threshold, per gov.uk; the salary and the employer's NI are then deducted for corporation tax. A dividend costs the director 10.75 percent in the basic band above the £500 allowance and no National Insurance, but the profit it comes from has borne corporation tax at 19 percent, 25 percent or the marginal rate. The dividend vs salary uk calculator on this site prints both routes' totals rather than a rule.
Why the usual split is a small salary and the rest as dividend
A salary of £12,570 uses the personal allowance in full and carries no income tax and no employee's NI, and above £5,000 it carries employer's NI at 15 percent unless the Employment Allowance, £10,500 for 2026 to 2027 per gov.uk, applies, which it cannot for a company whose only employee is a director. It also earns a qualifying year for the state pension. Above that, each extra pound of salary is taxed and charged NI twice, while each extra pound of dividend is taxed once at the dividend rate after corporation tax. On most small company numbers the dividend route is cheaper above the allowance, which is the whole reason the split exists.
Where the arithmetic turns, and why the calculator matters
The case for dividends weakens as corporation tax rises: at 25 percent plus 35.75 percent higher rate dividend tax, the combined take on a pound of profit paid as a higher rate dividend is heavier than it was at 19 percent, and pension contributions, which are deductible for the company and free of NI, become the alternative. It also turns on the director's other income, on a spouse's shares, and on whether the Employment Allowance can be claimed. None of that is a rule of thumb; it is a sum with your numbers in it, which is why the most tax-efficient way to pay yourself as a director calculator is the one that shows the total across both parties.
The worked example on the calculator
Turnover £90,000, expenses £12,000, salary £12,570, the rest declared as dividend, 2026 to 2027 rates. Employer's NI on the salary above £5,000 is £1,135.50; the taxable profit after salary and NI is £64,294.50, in the marginal band; corporation tax after marginal relief is £13,288.03; the after-tax profit of £51,006.47 is declared as dividend; dividend tax at 10.75 percent above the allowance is £5,429.45; the director keeps £58,147.02 of a £78,000 profit before pay. Change any input and the free ltd company tax calculator reworks every line.
Questions people ask about salary and dividend calculator
Should the salary be £5,000 or £12,570?
Either is common. £5,000 avoids employer's NI entirely and still earns the state pension qualifying year; £12,570 uses the whole personal allowance and the extra £7,570 of salary saves corporation tax but costs 15 percent employer's NI. Which wins depends on the corporation tax band, and the calculator shows it.
What about pension contributions instead of dividends?
An employer pension contribution is deductible for corporation tax, carries no NI and no immediate income tax, and is the usual alternative for profit the director does not need now. It belongs to the uk-pensions-retirement subject rather than this page, and it is the reason the calculator's dividend share input does not have to be the whole of it.
Does the calculator handle two directors?
Run it once per director with their own salary and band, since each has their own allowances. Dividvo Pro keeps a computation per shareholder against the company and compares two splits side by side.