Salary vs Dividends for UK Directors in 2026/27

An owner-manager can take money out as salary, which the company deducts against corporation tax but which carries income tax and both employee and employer National Insurance, or as dividends, which the company pays from post-tax profit and which carry only dividend tax. The 2026/27 figures, unchanged from 2025/26 for most thresholds:

• Personal allowance £12,570. Basic rate 20 percent to £50,270, higher 40 percent to £125,140, additional 45 percent above.
• Employee NI 8 percent above £12,570. Employer NI 15 percent above £5,000, offset by the £10,500 Employment Allowance where the company has more than one employee earning above the threshold.
• Dividend allowance £500. Dividend rates 8.75, 33.75 and 39.35 percent.
• Corporation tax 19 percent to 25 percent, so every pound of dividend has already borne 19 to 25 percent at company level.

A salary of £12,570 uses the personal allowance, is deductible for corporation tax, and triggers no employee NI. It triggers employer NI of about £1,135 on the £7,570 above the £5,000 threshold, unless the Employment Allowance covers it, which it does for companies with at least one other qualifying employee. Sole-director companies cannot claim the allowance, so for them a salary of £5,000 avoids employer NI entirely at the cost of leaving £7,570 of personal allowance to be used against dividends. Dividends then fill the rest of the basic-rate band and beyond, at 8.75 percent up to £50,270 of total income.

Figures are rounded, assume a single-director company outside the Employment Allowance, no other income and no pension contributions. The marginal cost of a dividend rises sharply above £100,000 of income because the personal allowance is withdrawn at £1 for every £2, producing an effective 60 percent band on salary and around 55 percent on dividends between £100,000 and £125,140.

An employer pension contribution is deductible for corporation tax, carries no NI, and is not income for the director until drawn. Up to £60,000 a year can go in, with carry-forward of unused allowance from the three previous years. For an owner who does not need all the profit now, a contribution is almost always the cheapest way to extract value, and it changes the salary-dividend calculation above by removing the profit from the table entirely.

Salary is preferable where the director needs a higher provable income for a mortgage, where the company has losses so the corporation tax deduction is worth less, where the Employment Allowance is available and the salary can be increased into the band it covers, or where the director's other income means dividends would fall straight into the higher band anyway. It also builds state pension entitlement, which a £5,000 salary does not.