Salary vs Dividends 2026/27
Last reviewed 14 August 2026
Published and source-checked by Mehmood Rajoka, founder and publisher. Review our editorial policy.
For limited company directors, salary and dividends have different tax and company-cost consequences. A mixed approach can be tax-efficient, but there is no universal best split: it depends on profits, other income, employment rights, and personal circumstances.
If you run a limited company, you can choose how to extract profits — as salary, dividends, or a mix. Each route has different tax implications for both you and your company. This comparison explains the key differences using current published rates.
It is a decision guide, not an optimisation calculator. The figures below show the headline 2026/27 personal-tax rates and explain the company-side inputs that a full comparison would need: taxable company profit, Corporation Tax, employer National Insurance, any Employment Allowance, distributable reserves, other personal income and the director's NI position.
A sound comparison starts with company profit before the director's remuneration. Salary and employer NI can reduce taxable company profit; Corporation Tax is then calculated on the remainder; dividends can be paid only from legally distributable post-tax profit. Personal salary Income Tax and employee NI are added separately from dividend tax. Comparing only 20% salary tax with a dividend rate misses those company costs and allowances.
The linked director calculator models a deliberately narrow case: one UK company, a twelve-month period, no associated companies or other personal income, standard director NI and full distribution of current post-tax profit. It does not apply Employment Allowance, retained reserves, IR35, pension contributions, benefits or specialist Corporation Tax reliefs. Those exclusions are inputs to professional advice, not details to hide behind an “optimal salary” headline.
What each option means
Salary
Paid as employment income. Subject to income tax and employee National Insurance. Your company may also pay employer National Insurance. Salary is generally a deductible business expense, reducing Corporation Tax.
Dividends
Paid from post-tax company profits. Subject to dividend tax (10.75%, 35.75%, or 39.35% for 2026/27, depending on your band) but not National Insurance. The £500 dividend allowance is taxed at 0% after any available Personal Allowance.
Key differences
| Aspect | Salary | Dividends |
|---|---|---|
| Income tax | 20% / 40% / 45% (standard bands) | 10.75% / 35.75% / 39.35% (2026/27) |
| National Insurance (employee) | 8% above £12,570 | None |
| National Insurance (employer) | May apply; check current employer thresholds | None |
| Corporation Tax impact | Salary is deductible — reduces CT bill | Dividends paid from post-CT profits |
| Tax-free allowance | Personal Allowance: £12,570 | Dividend Allowance: £500 + remaining PA |
| Pension contributions | Salary counts as pensionable earnings | Dividends do not count for pension auto-enrolment |
Best for
Salary is better when…
You want to build up NI qualifying years for state pension, need pensionable earnings, or want to maximise deductible expenses against Corporation Tax.
Dividends are better when…
They fit your company and personal tax position after considering Corporation Tax, employer National Insurance, other income and the money available for distribution.
A combination is usually optimal
A mix can be appropriate, but there is no standard salary figure that is right for every director. It depends on company profit, allowances, employment rights and personal circumstances.
Assumptions and caveats
- This comparison uses current published rates and simplified assumptions
- It does not account for IR35 status, employment rights implications, or pension auto-enrolment thresholds
- Corporation Tax rates and marginal relief can affect the overall comparison; the page does not calculate company profit or Corporation Tax
- Individual circumstances, other income, and reliefs will change the outcome
- This is not tax advice — consult a qualified accountant for your specific situation
Try the calculators
Related guides
Frequently Asked Questions
Official sources
Rates and thresholds are checked against the following primary sources. Review dates are shown on the relevant guide or methodology page.
Scope: This comparison is general information for common limited-company scenarios. It does not calculate Corporation Tax, Employment Allowance, IR35, employment-rights effects, director National Insurance or a personalised optimal split.
Last reviewed: 14 August 2026