The salary and dividend split is the central extraction decision for most owner-managed limited companies. Get it right and you minimise tax across both company and personal layers. Get it wrong and you leave thousands in unnecessary NI or income tax on the table. You have to look at both sides at once: what the company pays and what you pay personally.
Written by James Whitfield · Updated August 2026 · Checked against 2026/27 HMRC rates · Editorial standards · Methodology
For most directors in 2026/27, the tax-efficient approach is a £12,570 salary (using the full personal allowance) topped up with dividends. Salary reduces company profit before corporation tax; dividends carry no National Insurance and are taxed at 10.75% basic, 35.75% higher and 39.35% additional rate after the £500 dividend allowance.
With a £12,570 salary you can take roughly £37,700 in dividends before reaching the £50,270 higher-rate threshold, keeping dividend tax at the 10.75% basic rate. A single-director company usually cannot claim the Employment Allowance, so the £1,135.50 employer NI on that salary is offset instead by the corporation tax saving on the deduction.
Here is the whole chain on a £50,000 profit, from company profit down to what actually lands in your pocket. The director takes the £12,570 salary and draws everything left after corporation tax as dividends.
| Company profit before salary | £50,000 |
| Director salaryUses the full personal allowance; deductible for the company | -£12,570 |
| Employer NI15% on the £7,570 above the £5,000 secondary threshold | -£1,135.50 |
| Taxable company profit | £36,294.50 |
| Corporation tax at 19%Profit is under £50,000, so the small profits rate applies | -£6,895.95 |
| Dividends paid | £29,398.55 |
| Dividend tax£500 allowance, then 10.75% on the rest within the basic-rate band | -£3,106.59 |
| Personal take-home (salary + dividends) | £38,862 (£3,239/mo) |
Total tax across both layers is £11,138 - an effective rate of 22.28% on the £50,000. Notice the salary itself is completely tax-free to you: no income tax, no employee NI. The only tax on it is the £1,135.50 employer NI, and even that is a deductible cost that shaves the corporation-tax bill.
Taking all income as salary means you pay employee NI at 8% on salary between £12,570 and £50,270, and the company pays employer NI at 15% on salary above £5,000. At a £60,000 salary, employee NI alone is approximately £3,016 and employer NI approximately £8,250. That is over £11,000 in NI combined. Dividends carry no National Insurance at any level.
Taking everything as dividends avoids NI but creates a different problem. The company must pay corporation tax on its profits before distributing anything. Taking no salary means no PAYE deduction before corporation tax, so the company pays more corporation tax and you have no personal allowance offset. A zero-salary approach almost always produces a higher total tax bill than a modest salary plus dividends.
The answer for most directors sits between those extremes. A salary large enough to use the personal allowance and reduce company profit before corporation tax, but not so large that it generates significant employee NI. Dividends then cover the rest at lower dividend tax rates.
£5,000 is the employer NI secondary threshold for 2026/27. Taking salary at or below £5,000 avoids any employer NI on the company while still reducing taxable company profit before corporation tax. A salary of £6,708 (the lower earnings limit) is the lowest that still secures a qualifying year for the State Pension. You pay no income tax or employee NI on any of these levels.
£12,570 is the personal allowance and the optimal salary for most directors. Salary at this level is completely income-tax-free for you. It triggers employer NI: 15% on (£12,570 − £5,000) = £1,135.50. If the company is eligible for the Employment Allowance (it has 2+ payrolled employees or directors), that £1,135.50 is fully covered and the net employer NI is £0. Otherwise the employer NI is itself a deductible company expense, so the total company deduction is £13,705.50 and the corporation tax saving outweighs the NI cost.
For most directors £12,570 is the optimum: it uses the full personal allowance and the employer NI is either covered by the Employment Allowance or outweighed by the corporation tax saving on the larger deduction. A lower salary (£5,000 for zero employer NI, or £6,708 for State Pension credit) only makes sense in specific circumstances, such as a sole-director company that wants to avoid triggering any payroll NI at all.
Once salary is set, remaining extraction comes from dividends. Dividends stack on top of salary in your personal tax calculation. With salary at £12,570, dividends start at zero taxable income. The first £500 is covered by the dividend allowance. Above that, dividends within the basic rate band are taxed at 10.75%.
The basic rate band runs to £50,270 of total income. With salary at £12,570, you can take approximately £37,700 in dividends before hitting the higher rate threshold. At that point your total income is £50,270. Income tax on the salary is zero. Dividend tax is approximately £3,997 (10.75% on £37,200 above the £500 allowance).
Push dividends above £50,270 and the higher-rate charge of 35.75% applies on the excess. For directors needing more than roughly £50,270 in total income, additional dividends become much more expensive. That is when leaving profit in the company or making a pension contribution starts to make real sense.
Company starts with £75,000 profit. Director salary: £12,570. Employer NI: £1,139. Taxable profit after salary and employer NI: £75,000 − £12,570 − £1,139 = £61,291. Corporation tax at marginal relief (on £61,291): approximately £15,148. Post-tax profit available for dividends: £46,143.
Director takes all £46,143 as dividends. Total personal income: £12,570 salary + £46,143 dividends = £58,713. Income tax on salary: £0 (covered by personal allowance). Dividend tax: £500 allowance, then £37,200 at 10.75% = £3,997, then £8,443 at 35.75% = £3,018. Total dividend tax: approximately £7,015. Employee NI on salary: £0. Personal take-home: approximately £51,128.
Combined tax across company and personal: corporation tax £15,148 + employer NI £1,139 + dividend tax £7,015 = £23,302. Effective rate on original £75,000: approximately 31%. A sole trader at £75,000 profit pays approximately £24,932 income tax + £2,720 Class 4 NI = £27,652, around 37%. The limited company saves approximately £4,350 in this scenario.
A company pension contribution reduces profit before corporation tax and triggers no NI. For a director who does not need every pound of profit as current income, a pension contribution beats taking additional dividends in the higher rate band.
Take the example above. Instead of taking £8,443 as dividends at 35.75%, the company makes a pension contribution of £8,443. Corporation tax saving: approximately 26.5% × £8,443 = £2,237. The pension receives the full £8,443. No dividend tax applies. The corporation tax saving stays in the company.
Pension contributions are most powerful when profits are in the marginal relief band or when your extraction is approaching the higher-rate threshold. That is where the gap between pension and dividend efficiency is widest.
For most directors, £12,570 — it uses the full personal allowance, and the £1,135.50 employer NI is either covered by the Employment Allowance (if the company has 2+ payrolled employees) or outweighed by the corporation tax saving on the larger deduction. A lower salary of £5,000 (zero employer NI) or £6,708 (State Pension credit) can suit a sole-director company that wants to avoid triggering payroll NI.
Not always. Salary reduces company profit before corporation tax, and the saving can outweigh the NI cost at lower salary levels. A combination of salary and dividends beats either extreme. At higher extraction levels dividends are generally preferable because they carry no NI.
Approximately £37,700, the amount needed to bring total income to the £50,270 higher-rate threshold. Above this, dividends are taxed at 35.75% rather than 10.75%. Total take-home at this combination is approximately £46,273 for a director in England/Wales.
Yes. Use the salary vs dividend calculator and adjust salary and dividends together. Watch total personal take-home and retained company profit at different combinations to find the best split for your situation.
The rates and rules on this page are drawn from the official UK government sources below, using the confirmed 2026/27 figures. Each link opens the relevant HMRC, GOV.UK or Companies House page in a new tab.
The limited company tax calculator turns this guidance into a concrete estimate for corporation tax, dividends and personal take-home, based on 2026/27 HMRC rates.