Tools · Directors
Optimal Salary and Dividend Split
Most guidance tells company directors to take £12,570 and the rest as dividends. That is right for some companies and costs others thousands. This works out your actual optimum.
2026/27 tax year · England, Wales & Northern Ireland
Why the answer is not always £12,570
The usual rule of thumb exists because salary above the secondary threshold of £5,000 attracts employer National Insurance at 15%, and that cost usually outweighs the corporation tax saved. Take the personal allowance, pay no income tax and no employee National Insurance, and extract the rest as dividends.
That reasoning breaks the moment your company can claim the Employment Allowance, which covers up to £10,500 of employer National Insurance. With the cost removed, salary becomes the cheaper route, because salary is deductible against corporation tax while dividends are paid out of profit that has already been taxed.
It matters most in the marginal relief band. Between £50,000 and £250,000 of profit, each extra pound is effectively taxed at about 26.5%, higher than the 25% main rate. Salary deducted there saves tax at 26.5%, which is why the optimum can climb a long way above the personal allowance.
The catch nobody mentions
A company whose only employee earning above the secondary threshold is also a director cannot claim the Employment Allowance. For most one-person contractor companies that settles it, and £12,570 really is the answer. Take on one employee paid above the threshold and the calculation changes completely.
Two other things worth knowing. A salary of at least £6,708, the lower earnings limit, earns you a qualifying year towards the state pension even though no National Insurance is due. And pushing total income above £100,000 starts withdrawing your personal allowance, which is why the optimum stops climbing there. See the 60% tax trap calculator for what that costs.
Frequently asked questions
What salary should a company director take in 2026/27?
If you cannot claim the Employment Allowance, usually the personal allowance of £12,570. If you can, often a great deal more. Enter your figures above rather than trusting a rule of thumb.
Can a single-director company claim the Employment Allowance?
No. If the only employee paid above the £5,000 secondary threshold is a director, the company is not eligible.
What is the 26.5% rate?
Marginal relief between £50,000 and £250,000 of profit means each extra pound is effectively taxed at about 26.5%, above the 25% main rate. It is the reason deductible costs are worth more in that band.
Does this cover Scotland?
Scottish income tax bands apply to salary but not to dividends. This calculator uses England, Wales and Northern Ireland rates. See the take-home pay calculator for a Scottish salary comparison.
An estimate to help you plan, not tax advice. Your position depends on circumstances this tool cannot see, and the Employment Allowance rules in particular have conditions worth checking with your accountant.