For Ltd company directors. Compare 8 salary levels — from £0 (all dividends)
through the £12,570 Personal Allowance up to £60k — showing employer NI,
corporation tax, dividend tax and total net extraction. Picks the tax-efficient
split for 2025-26 and 2026-27.
Company & Director Inputs
Profit before paying yourself any salary or dividend
Rental, another employment, pension etc — consumes PA & bands
Dividend tax uses UK rates — Scottish rates don't apply
If your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance
Total net extraction: £55,765 (effective combined rate: 30.29%)
This beats the all-dividends option by £1,604 per year.
Compare Salary Levels
Salary
Employer NI
Corp Tax
Gross Dividend
Dividend Tax
Salary IT + NI
Total Net
£0 (all dividends)
£0
£17,450
£62,550
£8,389
£0
£54,161
£5,000 (Secondary Threshold — no employer NI)
£0
£16,125
£58,875
£8,863
£0
£55,012
£9,100 (old Secondary Threshold — employer NI now applies above £5,000)
£615
£14,876
£55,409
£9,090
£0
£55,420
£12,570 (Personal Allowance — no income tax)Best
£1,136
£13,818
£52,476
£9,282
£0
£55,765
£25,000
£3,000
£10,030
£41,970
£8,633
£3,480
£54,857
£37,700 (basic rate limit)
£4,905
£7,105
£30,290
£7,632
£7,036
£53,321
£50,270 (higher rate threshold)
£6,791
£4,359
£18,581
£6,464
£10,556
£51,831
£60,000
£8,250
£2,233
£9,518
£3,224
£14,643
£51,651
Salary and employer NI are corporation-tax deductible. Dividends are paid from post-CT profit. Dividend allowance (£500) and the £12,570 Personal Allowance both reduce total tax.
Every £1 of salary reduces corporation tax by 19p (small profits rate) or 25p (main rate). Employer NI is also deductible.
Dividends are paid from post-tax profit
Dividends come out of what's left after corp tax, then face dividend tax at 10.75% / 35.75% / 39.35% from 6 April 2026 (up from 8.75% / 33.75% / 39.35%). The combined rate is higher than it looks — and higher by 2pp at basic and higher bands versus 2025-26.
£12,570 salary is the common sweet spot
Uses the full Personal Allowance with zero income tax and zero employee NI. Triggers some employer NI above £5,000 — but the corp tax saving on the salary + employer NI usually exceeds the cost.
Employment Allowance changes the math
If the company qualifies (£10,500/year in 2025-26 — NOT available to single-director companies), a £12,570 salary has zero effective employer NI, making it even more attractive.
Frequently asked questions
What's the most tax-efficient salary for a Ltd company director?
For a single-director company without Employment Allowance, paying £12,570 salary (the Personal Allowance) then taking the rest as dividends is usually the best trade-off: the salary pays no income tax and no employee NI, while being corporation-tax deductible. Employer NI kicks in above the £5,000 Secondary Threshold, but the corporation tax saving typically outweighs it. If you qualify for Employment Allowance (£10,500 in 2025-26 — rare for single-director Ltds), £12,570 becomes a clear winner.
Why is a low salary + high dividends tax-efficient?
From 6 April 2026 (2026-27) dividends are taxed at 10.75% / 35.75% / 39.35% — up 2pp at basic and higher from 2025-26's 8.75% / 33.75% / 39.35%, per Autumn Budget 2025. Dividends still avoid National Insurance entirely. However, dividends are paid from post-corporation-tax profits (25% main / 19% small), so the effective combined rate at basic rate (2026-27) is now 25% + 10.75% × 75% ≈ 33.1% — still below salary + NI + corp tax in most cases, but the Ltd dividend advantage narrowed on 6 April 2026.
Can Ltd directors claim Employment Allowance?
Not if you're the sole director and the only person on payroll. Employment Allowance (£10,500/year in 2025-26) is blocked for single-director companies. If you have at least one employee (even a part-time co-director spouse), you may qualify — check HMRC's rules. This calculator toggles Employment Allowance eligibility so you can model both cases.
What's the £500 dividend allowance?
The first £500 of dividends is tax-free regardless of which band you're in (unchanged for 2025-26 and 2026-27; was £1,000 in 2023-24 and £2,000 pre-2023). Above £500, dividends are taxed at 8.75% / 33.75% / 39.35% in 2025-26; from 6 April 2026 (2026-27) the basic and higher rates rose 2pp to 10.75% / 35.75%, with additional unchanged at 39.35%.
Should directors take a salary at all?
Yes, in almost every case. A salary at or above the Lower Earnings Limit (£6,500/year in 2025-26, £6,708/year in 2026-27) builds a qualifying year towards your State Pension. That qualifying year is no longer free, though: since 6 April 2025 the £5,000 Secondary Threshold has sat BELOW the LEL, so a salary at the LEL costs the company employer NI at 15% on the slice above £5,000 — £256.20 in 2026-27 — and a sole-director payroll cannot cover it with Employment Allowance. Salary up to £12,570 uses your tax-free Personal Allowance. Going above triggers income tax + NI but remains corp-tax deductible. Pure dividends-only is rarely optimal.
Does this calculator handle Scottish income tax?
Yes for salary income tax — Scottish rates (19% / 20% / 21% / 42% / 45% / 48%) apply if you select 'Scotland'. Dividend tax always uses UK rates regardless of where you live.
