Calculate tax on salary + dividends for limited company directors — with full band breakdown and take-home
Your salary and dividends
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Annual take-home pay
Director salary
Dividend income
Other income
Income tax on salary
Employee NI on salary
Total personal tax
Annual take-home
Effective rate
How dividend tax works for limited company directors
As a limited company director, you typically take a low salary and extract the rest of the company's profits as dividends. Dividends come from post-Corporation-Tax profit and are taxed at your personal dividend tax rates — which are lower than income tax rates and carry no National Insurance.
The salary + dividend strategy
The most common approach in 2026/27 for a sole director:
Salary: £12,570 — uses the full Personal Allowance. No employee income tax, no employee NI. Company pays Employer NI of 15% on £7,570 (£1,136/year) which is deductible.
Remaining company profit: pay 19% Corporation Tax (small profits rate ≤ £50k), then distribute post-tax profit as dividends.
Dividends: first £500 tax-free (Dividend Allowance), then 8.75% in the basic rate band, 33.75% in the higher rate band.
Why dividends are taxed differently
The company already paid Corporation Tax on the profits before distributing them. Dividend tax rates are lower than income tax rates to account for this double taxation. No National Insurance is charged on dividends — this is the key structural advantage over salary.
Dividend allowance 2026/27: £500
The first £500 of dividend income each year is tax-free. This allowance applies to everyone — whether you are a company director, investor, or both. It was reduced from £1,000 to £500 in April 2024 and remains at £500 for 2026/27.
Frequently asked questions
The dividend allowance is £500 for 2026/27 — dividends up to this amount are tax-free. Above £500, dividend tax rates apply: 8.75% (basic rate), 33.75% (higher rate), 39.35% (additional rate). Dividends inside an ISA or pension wrapper are always tax-free and do not count toward the allowance.
For a sole director without other employees: salary of £12,570 (uses full Personal Allowance, no employee tax/NI, company pays £1,136 Employer NI which is deductible). Then extract post-Corporation-Tax profits as dividends. This minimises total tax on company income. The calculator above shows the take-home for any combination.
No — dividends are not subject to any National Insurance contributions. Only salary/employment income is subject to NI. This is the primary tax advantage of the salary+dividends structure for limited company directors.
If your dividends exceed £500, report them on your Self Assessment tax return (SA100 with supplementary pages). Declare the gross dividend received. Tax on dividends is not deducted at source — you pay via Self Assessment by 31 January following the tax year.
No. Dividends must come from distributable profits (post-Corporation-Tax retained earnings). Paying dividends in excess of available profits is illegal. Always check your company's retained profit position before declaring a dividend — your accountant or accounting software can confirm the available distributable reserves.