Dividend vs Salary Calculator Ltd Company

For company directors, choosing the optimal split between salary and dividends is one of the most important tax planning decisions each year. Salary is subject to Income Tax and National Insurance (both employee and employer), but is a deductible expense for Corporation Tax. Dividends avoid NI entirely and are taxed at lower rates, but are paid from post-tax profits and do not count as an allowable expense.

The classic optimal strategy for a single director with no other income is to take a salary at the NI Primary Threshold (£12,570 for 2024/25) — just enough to qualify for state pension credits and the full Personal Allowance — then extract additional profits as dividends. Dividend tax rates are 8.75% (basic), 33.75% (higher), and 39.35% (additional), compared to Income Tax rates of 20%, 40%, and 45% plus NI. The dividend allowance is now just £500, making the first £500 of dividends tax-free.

How to Use This Calculator

1. Enter your company's available profit before any director remuneration
2. Set your salary level (the calculator may suggest the optimal amount)
3. Add any other income sources outside the company
4. Compare the total tax burden of different salary/dividend splits
5. Review the combined Corporation Tax, Income Tax, and NI to find the most efficient extraction

Key Facts

Employer's NI at 13.8% on salary above £9,100 is often the deciding factor — it is an additional cost that does not apply to dividends. However, salary reduces Corporation Tax at 19-25%, partially offsetting the NI cost. For profits in the marginal relief band (£50,000-£250,000), the higher effective Corporation Tax rate makes salary relatively more attractive. Always consider pension contributions as a third extraction method — they avoid both Income Tax and NI.