A director taking money from their own company is choosing between two taxes, and for 2026/27 the answer moved. Salary is deductible for Corporation Tax but carries employer National Insurance above £5,000 and employee National Insurance and Income Tax above £12,570. A dividend carries no National Insurance at all but is paid from profit that has already been taxed, and the dividend rates rose this year to 10.75% basic, 35.75% higher and 39.35% additional after a £500 allowance. The usual answer is still a £12,570 salary and dividends above it, but the margin is narrower than it was.
The £12,570 salary, costed properly
At £12,570 you pay no Income Tax, because it is the Personal Allowance, and no employee National Insurance, because the primary threshold sits at the same figure. The company pays £1,135.50 of employer National Insurance, 15% of the £7,570 above the £5,000 secondary threshold, and cannot use the Employment Allowance if the director is its only employee. Against that, the salary and the employer NI together are deductible, saving £2,604.05 of Corporation Tax at 19%. Net, the salary route is still ahead of leaving that money to be distributed, but by about £1,277 on the £7,570 above the secondary threshold rather than by the comfortable margin the old rates gave.
Why not stop at £5,000
Because the £7,570 between the secondary threshold and the Personal Allowance is the only money that reaches you completely untaxed on your side while still being deductible on the company's. Taking it as salary costs the company £1,135.50 of employer NI and saves £1,654.05 of Corporation Tax on the salary and that NI. Taking the same company money as a dividend instead leaves about £6,293 after Corporation Tax and dividend tax, against £7,570 of salary. The salary wins, and it also keeps a qualifying year for the State Pension, which a dividend does not.
Dividends above the salary
The first £500 of dividend is free. After that, and with a £12,570 salary using the Personal Allowance, the basic band has £37,700 of room at 10.75%, then 35.75% up to £125,140 and 39.35% above. On £31,828.55 of dividends that is £3,367.82. Two traps: dividends must come from post-tax PROFIT and not from cash, so a company with money in the bank and no distributable reserves cannot lawfully pay one; and they count as income for the £100,000 Personal Allowance taper, which makes the effective rate on that slice far higher than the headline.
What a salary and dividend calculator usually leaves out
Employer National Insurance on the salary, which is the whole reason £12,570 is not free. The £50,000 small profits limit, above which marginal relief takes the effective Corporation Tax rate above 19% on the way to 25%. The pension contribution, which is deductible, carries no National Insurance on either side and is not dividend income, and beats both routes within the annual allowance. And the timing: dividends are taxed in the year they are declared, so moving one across 5 April changes which year's bands it meets.
When none of this applies
Inside IR35, where the fee-payer deducts Income Tax and National Insurance before the fee reaches the company, there is no profit to distribute and this arithmetic is moot. On a salary above the Personal Allowance, where the employee National Insurance and Income Tax start, the comparison changes shape and the answer is usually to stop the salary and use dividends and pension. And in Scotland, where the salary meets Scottish Income Tax bands but dividends do not, because dividend rates are UK-wide.
Questions people ask about director salary calculator
What salary should a director take in 2026/27?
Usually £12,570, the Personal Allowance and the National Insurance primary threshold. It costs the company £1,135.50 of employer National Insurance and saves £2,604.05 of Corporation Tax, and it keeps a qualifying year for the State Pension.
Do I pay National Insurance on dividends?
No. Dividends carry no National Insurance at all, which is their advantage. They are paid from profit that has already borne Corporation Tax, which is their cost.
What are the dividend tax rates for 2026/27?
A £500 allowance, then 10.75% in the basic band, 35.75% in the higher band and 39.35% in the additional band. Basic and higher both rose this year, which narrows the case for dividends over salary.
Can I pay a dividend out of money in the bank?
Only if there is distributable profit to match it. A dividend comes from post-tax profit, not from cash. Paying one without reserves makes it unlawful and repayable, which is a real risk on a contractor company with VAT and Corporation Tax still to settle.