If you run your own limited company, you decide how to pay yourself. Most owner-directors take a small salary and the rest of their income as dividends, because dividends carry no National Insurance. But dividends are paid out of profits that have already had Corporation Tax taken off, and the basic and higher dividend tax rates went up in April 2026, so the sums are worth checking again this year.
This guide explains how each route is taxed in 2026/27, using HMRC’s published rates. The dividend tax calculator works out the personal tax on any mix of salary and dividends, and the Corporation Tax calculator shows the company’s side.
The short version
- Salary is a business cost: it reduces the company’s Corporation Tax, but above £5,000 a year it costs employer National Insurance at 15%.
- Dividends are paid from profit after Corporation Tax, which is 19% to 25%.
- After a £500 allowance, dividends are taxed at 10.75%, 35.75% or 39.35%, with no National Insurance.GOV.UK
- A common pattern is a salary up to the Personal Allowance of £12,570, with the rest as dividends.
£8,396
- Income Tax on salary
- £0
- Employee NI on salary
- £0
- Total personal tax
- £8,396
- Take-home per year
- £54,174
- Take-home per month
- £4,514
- Employer NI on salary (company)
- £1,136
- Personal tax as % of income
- 13.4%
- Your Personal Allowance (£12,570) is used against salary first; the first £500 of dividends above it is tax-free but still counts towards your tax band.
- Dividends are taxed at the same UK rates in Scotland, Wales and Northern Ireland as in England.
- Your company also pays about £1,136 employer National Insurance on the salary (before any Employment Allowance, which a company cannot claim if the director is its only employee paid over the secondary threshold). Dividends are paid from profits after Corporation Tax.
- National Insurance uses a director's annual earnings period. Savings interest and other income are not included.
Dividend tax: £8,396 for 2026/27 on £50,000 of dividends
Show the breakdown
| Line | Year | Month |
|---|---|---|
| Salary | £12,570 | £1,048 |
| Dividends | £50,000 | £4,167 |
| Income Tax on salary (England & Northern Ireland) | £0 | £0 |
| Employee National Insurance on salary | £0 | £0 |
| Dividend allowance: £500 at 0% | £0 | £0 |
| Dividends at 10.75% on £37,200 | £3,999 | £333 |
| Dividends at 35.75% on £12,300 | £4,397 | £366 |
| Total personal tax | £8,396 | £700 |
| Take-home (salary + dividends) | £54,174 | £4,514 |
- Take-home£54,17487%
- Dividend tax£8,39613%
Three ways to take money out
As a director and shareholder you can take money from your company in three main ways:GOV.UK
- Salary, expenses and benefits. The company runs payroll, deducts Income Tax and National Insurance, and pays employer National Insurance on top.
- Dividends. A payment to shareholders out of the company’s profits. Dividends are not a business cost, so they don’t reduce Corporation Tax.
- Director’s loans. Money you take that is not salary, dividend or a repayment of money you put in. Loans have their own tax rules if they are not repaid on time.GOV.UK
The company itself is a separate taxpayer. It pays Corporation Tax on its profits, and only then can it pay dividends.
What a salary costs
A director’s salary is taxed like any employee’s, with two differences: directors’ National Insurance is worked out on an annual earnings period, and a company whose only employee paid above the secondary threshold is a director can’t claim the Employment Allowance.GOV.UK Here is what three common salary levels cost for a director in England with no other income:
| Salary level | Income Tax | Employee NI | Employer NI |
|---|---|---|---|
| Secondary threshold, £5,000 | £0 | £0 | £0 |
| Lower earnings limit, £6,708 | £0 | £0 | £256 |
| Personal Allowance, £12,570 | £0 | £0 | £1,136 |
| £50,000 | £7,486 | £2,994 | £6,750 |
Up to the Personal Allowance there is no Income Tax and no employee National Insurance, because the primary threshold is the same figure. The only cost is employer National Insurance on the part above the secondary threshold. Above the Personal Allowance, a salary starts to attract Income Tax and employee National Insurance as well, which is why most directors stop there.GOV.UK
What dividends cost
Dividends cost the company nothing in National Insurance, but they come out of profit that has already been taxed. Corporation Tax for the financial year starting 1 April 2026 works like this:HMRC
| Company profit | Corporation Tax | Effective rate |
|---|---|---|
| £40,000 | £7,600.00 | 19% |
| £60,000 | £12,150.00 | 20.25% |
| £100,000 | £22,750.00 | 22.75% |
| £250,000 | £62,500.00 | 25% |
Profits up to £50,000 pay the small profits rate. Between that and £250,000, Marginal Relief tapers the rate up towards the main rate, which means each extra pound of profit in that range is taxed at slightly more than the main rate. The limits are shared between associated companies and reduced for short accounting periods.GOV.UK
On the personal side, dividends sit on top of your salary in the Income Tax bands. The first £500 is taxed at nothing, then:
| Dividend band | Rate 2026/27 |
|---|---|
| Within the basic rate band | 10.75% |
| Within the higher rate band | 35.75% |
| Above the additional rate threshold | 39.35% |
These are UK rates for everyone, including Scottish taxpayers. A director in Scotland with a salary at the Personal Allowance and £50,000 of dividends pays £8,396 of dividend tax, exactly the same as in England.GOV.UK
The same £50,000 taken three ways
Here is £50,000 of personal income for 2026/27, taken as salary only or as a small salary plus dividends, for a director in England:
| How it is taken | Personal tax | Take-home | Employer NI |
|---|---|---|---|
| All salary | £10,480 | £39,520 | £6,750 |
| Salary of £12,570, the rest as dividends | £3,970 | £46,030 | £1,136 |
| Salary of £5,000, the rest as dividends | £3,970 | £46,030 | £0 |
Two things stand out. First, the dividend routes leave you far more than the all-salary route, and the company avoids most of the employer National Insurance. Second, the two dividend routes cost you exactly the same personal tax: any Personal Allowance your salary doesn’t use simply covers the first slice of your dividends instead.
What this table can’t show is Corporation Tax. Every pound paid as dividends has had Corporation Tax taken off first, while salary and employer National Insurance are deducted before Corporation Tax is worked out. To compare fairly, start from the company’s profit before your pay and run each option through both calculators.
Choosing a salary level
The real choice for most single-director companies is between a salary at the secondary threshold and a salary at the Personal Allowance.
- At the secondary threshold, the company pays no employer National Insurance. But this salary is below the lower earnings limit of £6,708, so the year doesn’t count towards your State Pension through this job.GOV.UK
- At the Personal Allowance, the company pays a small amount of employer National Insurance, but the salary and that National Insurance both reduce its Corporation Tax. Because Corporation Tax is charged at a higher rate than employer National Insurance, this often works out slightly better overall, and the year counts towards your State Pension.
- If the company can claim the Employment Allowance, for example because it also employs someone other than a director above the secondary threshold, the employer National Insurance on a salary at the Personal Allowance is usually covered, which makes that level the clear choice.
Above the Personal Allowance, salary is taxed at 20% Income Tax plus 8% employee National Insurance plus employer National Insurance, so basic-rate income is usually cheaper taken as dividends. If you live in Scotland, a salary above the allowance is taxed at Scottish rates while dividends are not, which tilts things further towards dividends.
Corporation Tax comes first
Say your company makes £60,000 of profit in a year after all its costs, including your salary. It pays £12,150.00 of Corporation Tax, leaving £47,850 that it could pay out as dividends or keep in the business.
| Line | Amount |
|---|---|
| Taxable profits | £60,000.00 |
| Corporation Tax at 25% | £15,000.00 |
| Less Marginal Relief | -£2,850.00 |
| Corporation Tax | £12,150.00 |
| Profit after tax | £47,850.00 |
If you then take £40,000 of that as dividends on top of a salary at the Personal Allowance, your personal tax is:
| Line | Year | Month |
|---|---|---|
| Salary | £12,570 | £1,048 |
| Dividends | £40,000 | £3,333 |
| Income Tax on salary (England & Northern Ireland) | £0 | £0 |
| Employee National Insurance on salary | £0 | £0 |
| Dividend allowance: £500 at 0% | £0 | £0 |
| Dividends at 10.75% on £37,200 | £3,999 | £333 |
| Dividends at 35.75% on £2,300 | £822 | £69 |
| Total personal tax | £4,821 | £402 |
| Take-home (salary + dividends) | £47,749 | £3,979 |
Profit you leave in the company isn’t taxed again until you take it out, which is one reason many directors pay themselves only what they need and keep the rest as a cushion or for investment.
Higher earners
Once your salary and dividends together go past the higher-rate threshold, dividends are taxed at 35.75%. With the April 2026 increase and Corporation Tax at the main rate or in the Marginal Relief band, the advantage of dividends over salary at this level is small, and the answer can flip depending on your company’s profit.
Dividends count towards adjusted net income, so the Personal Allowance taper above £100,000 applies to them just as it does to salary.GOV.UK Company contributions into your pension are another option for higher earners; they sit within the annual allowance of £60,000 for most people.GOV.UK The Income Tax bands guide explains the taper.
The paperwork
Dividends have rules of their own, even for a one-person company:GOV.UK
- The company must not pay out more in dividends than its available profits from this and earlier years.
- Hold a directors’ meeting to declare each dividend and keep minutes, even if you are the only director.
- Write a dividend voucher for each payment showing the date, company name, shareholders and amount.
- Dividends must usually be paid to all shareholders in proportion to their shares.
If you are still a sole trader and wondering whether a company is worth it, compare this with the self-employed tax guide. The National Insurance guide covers employer National Insurance and the Employment Allowance in more detail, and the UK take-home pay guide gives the wider picture.
Figures on this page are worked out from 2026/27 rates published by HMRC and GOV.UK. Company tax planning depends on your full circumstances, so treat them as estimates and talk to an accountant before making big changes.
