Director Salary and Dividend Split Calculator, 2026/27

How this is calculated

The salary you choose is deducted from company profit as a business expense, along with any employer National Insurance due on it, since NIC is itself a deductible cost for corporation tax purposes. Corporation tax is then applied to what remains, using the small profits rate, marginal relief band, or main rate depending on the size of the remaining profit.

Whatever is left after corporation tax is treated as available for dividends. Personal income tax is calculated on the salary first, using the personal allowance and basic/higher rate bands, then dividends are stacked on top and taxed using the £500 dividend allowance and the dividend ordinary, upper and additional rates for 2026/27.

Why a low salary and dividends is common

A salary set at or near the personal allowance and the secondary NIC threshold typically avoids employee and employer NIC almost entirely while still counting towards state pension qualifying years, provided it is at least the lower earnings limit. Dividends, in contrast, carry no NIC at all, only income tax, which is why moving profit out as dividends rather than salary is usually more tax-efficient once National Insurance is taken into account.

The exact optimal salary depends on whether the employment allowance is available to reduce employer NIC, whether the director has other employment, and whether maximising qualifying years for the state pension matters more than minimising tax in a particular year.

Points worth checking before deciding

Dividends can only be paid out of retained, distributable profits after corporation tax, and must be properly documented with board minutes and dividend vouchers; paying dividends without sufficient reserves can create an illegal dividend that HMRC and creditors can challenge.

A very low salary can reduce entitlement to statutory payments such as maternity or sick pay, which are based on average earnings, so directors planning family leave should factor this into the salary decision alongside the tax saving shown here.

What is the most tax-efficient director salary for 2026/27?

Many advisers suggest a salary around the secondary NIC threshold or personal allowance, which avoids most NIC while preserving a state pension qualifying year, but the exact optimal figure depends on your other income, the employment allowance and company profit levels.

Can I pay myself only in dividends and no salary?

You can, but you would not build up state pension qualifying years or access certain statutory payments, and you would lose the tax-free personal allowance you could otherwise use against a small salary before any income tax is due.

Do dividends reduce my company's corporation tax bill?

No, dividends are paid from profit after corporation tax has already been calculated, unlike salary, which is deducted before corporation tax is worked out.

What happens if I pay a dividend without enough profit in the company?

This can create an illegal or unlawful dividend, which directors may be required to repay, and it can also cause problems with HMRC treating the payment as a loan or additional salary instead.