Salary & Dividend Tax Calculator

How to use it

1. 1Enter the director's salary and the dividends you plan to draw.
2. 2Set the tax year and region.
3. 3Compare the tax breakdown, including employer national insurance.

Why the split matters

Salary is a deductible business expense, so it reduces the company's corporation tax bill, but it attracts income tax and both employee and employer national insurance. Dividends are paid from post-tax profit, so they don't reduce corporation tax, but they carry no national insurance and are taxed at lower personal rates.

The interaction between those two facts is the whole game. Neither extreme is optimal: a salary-only approach overpays national insurance, while a dividend-only approach wastes the personal allowance and can break your national insurance contribution record.

The common structure

The usual approach is a modest salary set around the national insurance thresholds, with the rest taken as dividends. A salary at or just above the lower earnings limit secures a qualifying year for the State Pension while keeping national insurance minimal, and a salary up to the personal allowance uses tax-free income that dividends would otherwise waste.

Where the employment allowance is available, generally companies with more than one employee, a higher salary can become worthwhile because the employer national insurance is covered. Single-director companies usually can't claim it, which is why the optimum differs between the two cases.

Constraints to respect

Dividends can only be paid from distributable profit. Paying one when the company doesn't have retained profit creates an illegal dividend, which is typically reclassified as a director's loan and can trigger a separate tax charge. Board minutes and dividend vouchers should exist for each payment.

Also weigh what a low salary costs you elsewhere: mortgage affordability is usually assessed on salary plus dividends but lenders vary, and statutory maternity and paternity pay are based on salary alone. Pension contributions made directly by the company are a useful third route that neither salary nor dividends replicate.

Common questions

Is it better to take salary or dividends?

Usually a combination. A modest salary uses your personal allowance and protects your national insurance record; dividends above that avoid national insurance and are taxed at lower rates. Model your own figures above.

How are dividends taxed?

There's a small tax-free dividend allowance, after which dividends are taxed at their own basic, higher and additional rates, each lower than the equivalent income tax rate, and with no national insurance.

What salary should a single-director company pay?

Commonly a figure around the national insurance thresholds, enough to secure a qualifying year for the State Pension without triggering meaningful contributions. The exact optimum depends on whether the employment allowance is available.

Can I pay dividends if the company made a loss?

Only from accumulated distributable profit. Without it the payment is an illegal dividend, usually reclassified as a director's loan with its own tax consequences.

Do dividends count for a mortgage application?

Most lenders consider salary plus dividends, and many want two or three years of accounts. Policies vary widely, so check before restructuring how you pay yourself.