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Business & Self-Employed · 2025/26 rates

Dividend vs Salary Calculator

For one-person limited companies, the cheapest way to extract profit changed in April 2025 — employer NI now hits 15% above £5k, and dividend allowances shrank to £500. The old ‘£12,570 + dividends’ rule still wins for most, but the maths is closer than ever.

Company profit & salary scenarios

£

Profit available BEFORE director salary, employer NI and Corporation Tax.

£

Try £50,270 (basic-rate cap) or £5,000 (NI Secondary Threshold).

A · £0 salary

All dividends

£55,151

take-home

Salary£0
Employer NI£0
Corporation Tax−£17,450
Dividends paid£62,550
Income Tax£0
Employee NI£0
Dividend tax−£7,400

B · £12,570 salary

Personal Allowance

Best

£56,804

take-home

Salary£12,570
Employer NI−£1,136
Corporation Tax−£13,818
Dividends paid£52,476
Income Tax£0
Employee NI£0
Dividend tax−£8,242

C · £50,270 salary

Custom

£52,193

take-home

Salary£50,270
Employer NI−£6,791
Corporation Tax−£4,359
Dividends paid£18,581
Income Tax−£7,540
Employee NI−£3,016
Dividend tax−£6,102

Winner: how much extra you keep

  • A vs B difference
    £1,654
  • B vs C difference
    £4,612
  • Best take-home
    £56,804

Note: £0 salary means no NI credit for State Pension that year. £12,570 keeps the Personal Allowance and earns NI credit if you pay yourself above the Lower Earnings Limit (£6,500).

How we calculated your result

For each scenario we run a complete cashflow:

  1. Director’s salary is deducted from profit before Corporation Tax, along with the employer’s NI on it.
  2. Corporation Tax is applied at 19% (≤£50k), marginal effective 26.5% (£50k–£250k), or 25% (£250k+).
  3. Remaining profit is paid as dividends.
  4. Director pays Income Tax + employee NI on the salary, and dividend tax (8.75% / 33.75% / 39.35%) on the dividends above the £500 allowance.

Take-home = salary − Income Tax − employee NI + dividends − dividend tax.

Official UK rules in simple English

  • Dividend allowance 2025/26: £500. Anything above is taxed at 8.75% (basic), 33.75% (higher), 39.35% (additional).
  • Employer NI: 15% on salary above £5,000 Secondary Threshold (was 13.8% above £9,100 before April 2025).
  • Employment Allowance: £10,500 against employer NI — but not available for single-director companies with no other employees. Two-employee setups can claim it.
  • NI credit for State Pension: salary between Lower Earnings Limit (£6,500) and Primary Threshold (£12,570) gives a qualifying year at zero NI cost.
  • Dividends must come from distributable reserves— post-CT retained profits, not just current-year profit.

Common pitfalls to watch out for

  • ⚠ £12,570 salary now costs employer NI

    Under old rules, a £12,570 salary paid no NI at all. From April 2025, the employer pays 15% on the £7,570 above £5k = £1,135.50 employer NI. Still usually worth it for the Corporation Tax deduction and pension credit, but the margin narrowed.

  • ⚠ Single-director companies can't claim Employment Allowance

    If you’re the sole employee + sole director, you cannot claim the £10,500 NI relief. Add a spouse/partner on a real (audited) salary to qualify — but only if their role is genuine.

  • ⚠ Drawing too much can push you into 60% effective rate

    Total income (salary + dividends) above £100k starts losing your Personal Allowance — every extra £1 effectively costs £0.60. Dividend strategies that look optimal at low income become punishing here.

  • ⚠ Ignoring State Pension is a long-term mistake

    A £0 salary year is a £0 NI year — costing 1/35th of the State Pension permanently (~£230/year). 10 missing years = ~£2,300/year less in retirement. Class 3 voluntary NICs cost £907.40/year to fix later.

Frequently asked questions

Can I pay myself a salary lower than £12,570?
Yes — common alternatives are £6,500 (Lower Earnings Limit, NI credit at zero cost) and £5,000 (Employer NI Secondary Threshold). Both reduce CT deduction but eliminate employer NI.
What about pension contributions?
Employer pension contributions are CT-deductible and not capped by salary — but limited by “wholly and exclusively” commercial reasonableness. Often the most tax-efficient extraction over £100k.
When should I take dividends?
Time them across tax years to stay in basic-rate band. Each tax year resets the £500 allowance and the £37,700 basic-rate dividend band.

Simplified single-director model. Excludes Employment Allowance, multiple income sources, pension contributions, BIK and student loans. Not tax advice — speak to an accountant.

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