We compare four ways of paying yourself - and show what each one actually leaves you.
Salary, dividend or pension?
What each route actually leaves you, once every layer of tax has taken its cut.
UK limited company
Your company this year
The two ways to pay yourself
Optional third route
More settings
Salary or dividend: what £100 of profit is worth
Where every pound of profit goes
The same profit, three ways
The full calculation
The working
How this is worked out
The comparison is only meaningful if you measure the same thing on both sides: pounds of company profit in, pounds in your pocket out. Each route is taxed in a different order and at a different point.
- Salary is deductible from company profit, so it escapes corporation tax. It then attracts income tax, employee National Insurance at 8%, and employer National Insurance at 15% on the way out.
- Dividends are paid from profit after corporation tax, so they are taxed twice: once at 19% to 25% in the company, then at 10.75%, 35.75% or 39.35% personally. They carry no National Insurance at all, which is the entire reason they are attractive.
- Employer pension contributions are deductible from company profit, carry no National Insurance either side, and are not taxed on the way in. They are taxed when drawn, with 25% normally available tax free.
The dividend advantage narrowed on 6 April 2026. The ordinary and upper rates each rose two percentage points, so the gap between salary and dividends is smaller than it was in every previous tax year.
| Band | 2026/27 | 2025/26 |
|---|---|---|
| Dividend allowance | £500 | £500 |
| Ordinary (basic) rate | 10.75% | 8.75% |
| Upper (higher) rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% |
A worked example
The usual starting point for a sole director is a salary at the personal allowance of £12,570, with everything above it taken as dividends.
Why that number: below £12,570 you waste personal allowance you cannot carry forward. Above it, every extra pound of salary costs 20% income tax, 8% employee National Insurance and 15% employer National Insurance, which is a worse combined rate than dividends even after the April 2026 rise.
The salary still runs above the secondary threshold of £5,000, so the company pays employer National Insurance on the difference. For a sole director that cost cannot be offset, because a company whose only employee is a single director cannot claim the Employment Allowance. That exclusion is what makes £5,000 the better salary in some cases rather than £12,570.
The answer flips to the lower salary when the extra employer National Insurance costs more than the corporation tax the salary saves. That depends on your profit level, because it determines whether the deduction is worth 19%, 25%, or the 26.5% effective rate inside the marginal relief band. There is no single right salary, which is precisely why a calculator is more useful than a rule of thumb.
| Item | 2026/27 |
|---|---|
| Employer National Insurance | 15% above £5,000 |
| Employee National Insurance | 8% from £12,570 to £50,270, then 2% |
| Employment Allowance | £10,500 |
| Personal allowance | £12,570 |
The figures used
| Band | 2026/27 | 2025/26 |
|---|---|---|
| Dividend allowance | £500 | £500 |
| Ordinary (basic) rate | 10.75% | 8.75% |
| Upper (higher) rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% |
| Profit | Rate | What applies |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,000 to £250,000 | 25% less marginal relief | Effective 26.5% on each extra pound |
| Over £250,000 | 25% | Main rate on the whole profit |
Pension annual allowance is £60,000, tapering once threshold income exceeds £200,000 and adjusted income exceeds £260,000, down to a minimum of £10,000. Both tests must be met for the taper to apply.
All of these are listed together, with the GOV.UK page each came from, on our 2026/27 rates and thresholds reference.
Source: GOV.UK: tax on dividends, checked 2026-08-08.
What changes your answer
- Scotland. Scotland sets its own rates and bands on salary. Dividend rates are the same across the UK, but the point at which your dividends tip into the upper rate depends on the salary bands that apply to you, so a Scottish taxpayer can get a different answer from the same inputs.
- Student loan repayments are not modelled. They are charged on salary but not on dividends, which pushes the answer further towards dividends for anyone still repaying.
- Other income changes everything. Rental income, a salary from another job, or a partner's shareholding all move which band your dividends land in.
- More than one shareholder means dividends must follow shareholdings unless you have separate share classes. You cannot simply pay whoever has the most allowance left.
- Pension money is not accessible until 55, rising to 57 from 2028. It is the most tax-efficient route by a wide margin and the least useful if you need the cash this year.
- Dividends require distributable reserves. A company with accumulated losses cannot legally pay one however much cash is in the bank.