Salary + Dividend Calculator
Most directors take £12,570 to avoid NI
Combined Take-Home Pay
£48,539
£4,045/month from £52,570 total income
Salary: £12,570
Dividends: £40,000
Full Breakdown
| Gross Salary | £12,570 |
| Gross Dividends | £40,000 |
| Total Income | £52,570 |
| Income Tax (Salary) | £0 |
| National Insurance | £0 |
| Dividend Tax | -£4,031 |
| Total Deductions | -£4,031 |
| Total Take-Home | £48,539 |
Effective Income Tax
7.7%
Effective Combined Rate
7.7%
Employer NI (Cost)
2.0%
£1,045
💡 Director Tax Planning Tip
The most tax-efficient strategy is typically to take a salary of £12,570 (the Personal Allowance) and draw the rest as dividends. This avoids employee and employer NI on most of your income. Dividends up to ~£50,270 total income are taxed at just 8.75% (after the £500 allowance).
Learn about Salary Sacrifice for directors →1. Annual Salary: Enter the gross salary you take from your company. Many directors take £12,570 (the Personal Allowance) to minimise NI.
2. Annual Dividends: Enter the total dividends you plan to draw from your company this tax year.
3. Pension & Student Loan: Add these if applicable. Pension via Salary Sacrifice reduces both tax and NI on your salary.
The calculator shows your combined take-home pay, with a clear split between salary deductions and dividend tax.
How Director Salary & Dividends Work
As a company director, you have two main ways to extract profits: salary (subject to income tax and NI) and dividends (subject to dividend tax only, no NI).
The key advantage of dividends is that neither you nor your company pays National Insurance on them. This makes the combined tax burden on dividends significantly lower than on salary at every income level.
Corporation Tax First
Remember that dividends are paid from post-Corporation Tax profits. Your company pays 19-25% Corporation Tax before you can declare dividends. This calculator shows your personal tax position only.
The Optimal Salary for Directors (2025/26)
Most accountants recommend a salary of £12,570(the Personal Allowance). At this level:
- Zero income tax on your salary (fully covered by Personal Allowance)
- Zero employee NI (salary equals the Primary Threshold)
- Employer NI is payable above £5,000 (Secondary Threshold), but this is an allowable expense that reduces your Corporation Tax bill
- You qualify for State Pension by earning above the Lower Earnings Limit
Some directors choose a lower salary of £5,000 to avoid employer NI entirely while still qualifying for NI credits, but this reduces your Corporation Tax deduction for salary.
Dividend Tax Rates 2025/26
| Band | Income Range | Dividend Rate | vs Salary Rate |
|---|---|---|---|
| Dividend Allowance | First £500 | 0% | — |
| Basic Rate | £12,571 – £50,270 | 8.75% | 20% + 8% NI = 28% |
| Higher Rate | £50,271 – £125,140 | 33.75% | 40% + 2% NI = 42% |
| Additional Rate | Over £125,140 | 39.35% | 45% + 2% NI = 47% |
At every band, dividends are taxed at a lower rate than salary (which also attracts NI). The saving is most dramatic at the basic rate: 8.75% vs 28%.
Don't Forget Corporation Tax
Dividends can only be paid from after-tax profits. Your company pays Corporation Tax first:
- 19% on profits up to £50,000 (small profits rate)
- 25% on profits over £250,000 (main rate)
- Marginal relief between £50,000 and £250,000
So for a basic rate taxpayer, the total tax on dividends is actually: 19% Corporation Tax + 8.75% dividend tax on the remainder ≈ 26.1% effective. This is still lower than the 28% combined income tax + NI on salary.
Key Thresholds 2025/26
- Personal Allowance
- £12,570
- Dividend Allowance
- £500
- Higher Rate from
- £50,271
- PA Taper from
- £100,000
- Additional Rate from
- £125,141
- Corp Tax (small)
- 19%
- Corp Tax (main)
- 25%
Common Questions
Why not take it all as dividends?
You need some salary to qualify for State Pension (NI credits) and to create an employment cost that reduces Corporation Tax. The sweet spot is usually £12,570.
Are dividends subject to student loan?
Through PAYE, no. But if you file a Self Assessment and your total income (including dividends) exceeds the threshold, HMRC may collect student loan repayments via your tax return.
Can I pay dividends monthly?
Yes, as long as your company has sufficient retained profits. Many directors declare dividends quarterly or annually. Keep proper board minutes and dividend vouchers.