Dividend Salary Calculator

Q: What is the employer NI rate for directors in 2025/26?

From April 2025, employer NI is 15% on earnings above £5,000 per year. This is an increase from 13.8% in 2024/25, and the secondary threshold dropped from £9,100 to £5,000. For a director paying themselves £12,570 salary, employer NI is £1,136 per year. This is a deductible business expense, reducing corporation tax.

Q: How are dividends taxed in 2025/26?

Dividends have a £500 tax-free allowance. Above the allowance, dividend tax rates for 2025/26 are: 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Dividends are paid from post-corporation-tax profits, so the combined effective rate is higher than the headline rate. For example, at 19% corp tax plus 8.75% dividend tax, the combined rate is 26.09%.

Q: How do employer pension contributions save tax?

Employer pension contributions are a deductible business expense with no corporation tax, no employer NI, no employee NI, and no income tax. The annual allowance is £60,000 for 2025/26. When you access the pension from age 55 (rising to 57 from April 2028), 25% can be taken tax-free. This makes pension contributions one of the most tax-efficient extraction methods for Ltd company directors.

Q: What corporation tax rate applies to my company in 2025/26?

Corporation tax rates for 2025/26: 19% on profits up to £50,000 (small profits rate), 25% on profits over £250,000 (main rate), and a marginal rate of 26.5% on profits between £50,000 and £250,000. If you have associated companies, the thresholds are divided between them.

Find the optimal salary and dividend split for your Ltd company in 2025/26. Compare £5,000 vs £12,570 salary strategies, see every tax breakdown including employer NI (15%), corporation tax, and dividend tax. Calculate pension contribution tax savings.

Compare £5,000 vs £12,570 salary with remaining profit as dividends

Company profit before salary

Total profit available for salary + dividends

Other personal income

Employment income, rental income, etc.

Student loan plan

Student loan repayments apply to salary only, not dividends

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How to Use This Calculator

Optimal Split tab

Enter your company profit before salary and any other personal income (employment, rental, etc.). The calculator compares two common director salary strategies: paying yourself £5,000 (the NI secondary threshold, avoiding employer NI) versus £12,570 (the personal allowance, using your tax-free salary band). Each scenario shows corporation tax, employer NI, employee NI, income tax, dividend tax, and your net take-home pay.

Salary Comparison tab

See three salary strategies side by side: £5,000, £12,570, and £50,270. Each scenario includes all taxes — corporation tax, employer NI, employee NI, income tax, and dividend tax. The winner is clearly highlighted so you can see which strategy maximises your take-home at your profit level.

Pension Extraction tab

Calculate the tax savings from making employer pension contributions through your Ltd company. Enter your company profit, chosen salary, and pension amount. The calculator shows the tax saved compared to taking the same amount as salary + dividends. Employer pension contributions are deductible for corporation tax, and attract no NI or income tax.

Share your result

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The Formula

Director take-home pay from a Ltd company involves a chain of taxes. Here is the complete calculation:

1. Employer NI = (Salary − £5,000) × 15% (only if salary > £5,000)

2. Corporation Tax Profit = Company Profit − Salary − Employer NI − Pension
   Corp Tax = 19% (profit ≤ £50K) or 25% (profit ≥ £250K) or marginal rate

3. Distributable Profit = Corp Tax Profit − Corporation Tax
   Dividends = Distributable Profit

4. Employee NI = (Salary − £12,570) × 8% (on £12,570–£50,270)
      + 2% on salary above £50,270

5. Dividend Tax = Dividends above £500 allowance × rate:
   8.75% (basic), 33.75% (higher), 39.35% (additional)

6. Net Take-Home = Salary + Dividends − Employee NI − Income Tax − Dividend Tax

The key insight is that dividends are taxed twice: first at the corporation tax level (19–25%), then at the dividend tax level (8.75–39.35%). Even so, the combined effective rate on dividends is lower than the combined income tax + NI rate on equivalent salary, which is why the salary/dividend split exists.

Example

James — IT Contractor Ltd, £80,000 Company Profit

James runs an IT contracting company with £80,000 annual profit before salary. He has no other personal income. Here are his two main options:

Scenario A: £5,000 salary + dividends

Salary£5,000

Employer NI (15% above £5,000)£0

Corp tax profit£75,000

Corporation tax (marginal rate)£15,375

Dividends£59,625

Income tax on salary£0

Employee NI£0

Dividend tax£4,493

Total tax£19,868

Net take-home£60,132

Scenario B: £12,570 salary + dividends

Salary£12,570

Employer NI (15% above £5,000)£1,136

Corp tax profit£66,295

Corporation tax (marginal rate)£13,393

Dividends£52,902

Income tax on salary£0

Employee NI£0

Dividend tax£3,447

Total tax£17,975

Net take-home£62,025

At £80,000 profit, the £12,570 salary wins by approximately £1,893. The £1,136 employer NI cost is more than offset by the tax saved: using the personal allowance on salary (0% tax) rather than dividends (8.75% tax after corp tax) provides a net benefit. The crossover point where £5,000 beats £12,570 is typically around £40,000–50,000 profit, depending on other income.

Pension boost

If James also makes a £10,000 employer pension contribution, this saves approximately £2,500 in total tax (corporation tax + dividend tax avoided). The effective cost of putting £10,000 into his pension is only around £7,500.

FAQ

Should I pay myself £5,000 or £12,570 salary as a director? ▼

The optimal salary depends on your company profit level. At lower profits (under ~£50,000), a £5,000 salary often wins because avoiding employer NI (15% on the £7,570 above £5,000 = £1,136) outweighs the benefit of using the personal allowance. At higher profits, a £12,570 salary wins because the personal allowance saves you 8.75% dividend tax on £7,570 of income that would otherwise be taxed as dividends (after corporation tax). The crossover is typically £40,000–50,000 profit. From April 2025, the employer NI rate increased to 15% and the secondary threshold dropped to £5,000, making the £5,000 salary relatively more attractive at lower profit levels.

What is the employer NI rate for directors in 2025/26? ▼

From April 2025, employer NI is 15% on earnings above £5,000 per year. This is an increase from 13.8% in 2024/25, and the secondary threshold dropped from £9,100 to £5,000. For a director paying themselves £12,570 salary, employer NI is £1,136 per year (15% × £7,570). This is a deductible business expense, reducing corporation tax. If the director pays only £5,000 salary, employer NI is zero. Source: GOV.UK.

How are dividends taxed in 2025/26? ▼

Dividends have a £500 tax-free allowance (down from £1,000 in 2023/24). Above the allowance, dividend tax rates for 2025/26 are: 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Remember that dividends are paid from post-corporation-tax profits, so the combined effective rate is higher. For example, £100 of profit at 19% corp tax becomes £81 of dividends, then 8.75% dividend tax on £81 = £7.09, for a combined rate of 26.09%. At 25% corp tax + 33.75% dividend tax, the combined rate is 50.31%.

How do employer pension contributions save tax? ▼

Employer pension contributions are one of the most tax-efficient ways to extract money from a Ltd company. They are: (1) a deductible business expense (reducing corporation tax), (2) exempt from employer NI, (3) exempt from employee NI, and (4) not treated as income for income tax purposes. The annual allowance is £60,000 for 2025/26, with unused allowance carried forward up to 3 years. When you eventually access the pension (from age 55, rising to 57 in April 2028), 25% can be taken tax-free and the rest is taxed as income. Source: HMRC.

What corporation tax rate applies to my company in 2025/26? ▼

Corporation tax rates for 2025/26: 19% on profits up to £50,000 (small profits rate), 25% on profits over £250,000 (main rate), and a marginal rate of 26.5% on profits between £50,000 and £250,000. The marginal rate means each pound of profit between £50,000 and £250,000 is effectively taxed at 26.5%. If you have associated companies, the £50,000 and £250,000 thresholds are divided by the number of associated companies. Source: HMRC.

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