UK Salary vs Dividend Calculator

For most owner-managed companies, a salary of £12,570 (the Personal Allowance and NI Primary Threshold) is optimal. It uses your tax-free allowance, pays no employee NI, and — crucially — the salary and any employer NI are deductible against Corporation Tax, so the tax saved usually beats the small employer NI cost. A sole director who can't claim the Employment Allowance sometimes prefers £9,100 (the Secondary Threshold, where employer NI starts), but even then £12,570 is normally slightly better once the Corporation Tax deduction is counted.

Dividends have their own rates and a £500 tax-free Dividend Allowance. After the allowance, dividends falling in the basic-rate band are taxed at 8.75%, in the higher-rate band at 33.75%, and in the additional-rate band at 39.35%. Dividends sit 'on top' of your other income, so your salary uses up the lower bands first. Unlike salary, dividends carry no National Insurance — which is why the salary-plus-dividends combination is usually more efficient than a large salary.

Because the two are taxed very differently. Salary attracts Income Tax plus both employee (8%/2%) and employer (13.8%) National Insurance, but it's deductible against Corporation Tax. Dividends carry no NI and lower headline rates, but they're paid out of profit that has already suffered Corporation Tax. Taking just enough salary to use your Personal Allowance and protect your State Pension record, then dividends for the rest, typically minimises the combined company-plus-personal tax bill.

The Employment Allowance lets eligible employers reduce their employer's National Insurance by up to £5,000 a year. A company whose only employee is a single director generally cannot claim it. If you have at least one other employee paid above the Secondary Threshold, you usually can — which makes a £12,570 salary even more clearly optimal, because the employer NI on it is wiped out. Tick the box to see the effect.

Yes. Dividends are part of your adjusted net income, so a large dividend can push you over £100,000 and into the 60% Personal Allowance taper, or over £60,000 and into the Child Benefit charge. Directors with flexibility over when they declare dividends can spread them across tax years to stay under these thresholds. Model your adjusted net income separately to check where you'll land.

No. It gives a solid 2024/25 estimate for a typical single-company, England/Wales/NI director taking salary plus dividends, but real situations involve pension contributions, other income, associated companies, benefits-in-kind and timing decisions. Use it to understand the trade-off and frame the conversation, then confirm the numbers with your accountant before setting your pay.