Dividend Tax Calculator 2026/27

Why directors take salary and dividends

Most UK limited company directors pay themselves a small salary and take the rest as dividends. This usually costs less tax than a large salary because:

• Dividends carry no National Insurance, saving both employee NI (8% or 2%) and employer NI (15%) compared with the same amount of salary.
• Dividend tax rates are lower than Income Tax rates at the same income (10.75% against 20% in the basic rate band, 35.75% against 40% in the higher rate band).
• The company pays Corporation Tax on its profits, but Corporation Tax plus dividend tax is generally lower than Income Tax plus NI on the same salary.

The £12,570 salary

Most directors set their salary at exactly £12,570, the Personal Allowance, because:

• The salary is fully covered by the Personal Allowance, so no Income Tax is due on it.
• At £12,570 the salary sits at the employee NI threshold, so no employee NI is payable.
• The company can deduct the salary as a business expense, reducing its taxable profit and so its Corporation Tax.
• The salary keeps the director's National Insurance record going, protecting their State Pension and other contributory benefits.

Employer NI is payable on salary above £5,000 (the secondary threshold from April 2025). On a £12,570 salary this comes to £1,135.50. Sole directors can't claim the Employment Allowance.

Dividend allowance 2026/27

Everyone gets a £500 dividend allowance each tax year. The first £500 of dividend income above the Personal Allowance is tax-free. The allowance was cut from £2,000 to £1,000 in April 2023, and from £1,000 to £500 in April 2024, and stays at £500 for 2026/27.

When higher rates start

Dividend tax rates rise as your total income crosses each band:

• 10.75% on dividends in the basic rate band (total income up to £50,270)
• 35.75% on dividends in the higher rate band (total income £50,271 to £125,140)
• 39.35% on dividends in the additional rate band (total income above £125,140)

Salary and dividends stack: salary sits in the lower bands first, and dividends fill the space above it.

Self Assessment and paying dividends

Dividend income must be reported on a Self Assessment tax return. Directors usually pay dividends quarterly or once a year. Key points:

• Dividends can only be paid from distributable profits (the company must have made enough profit after tax).
• A dividend voucher must be issued each time a dividend is paid, showing the company name, date, amount and shareholder details.
• Dividends paid without enough profit are illegal dividends (also called ultra vires dividends) and must be repaid.
• The Self Assessment deadline is 31 January after the end of the tax year, with payment due on the same date.