Dividend vs Salary Calculator 2025/26.

It depends on whether you can claim Employment Allowance. If you're the only director-employee, you cannot claim it. In that case the optimal salary is £5,000 (the new Secondary Threshold from April 2025) — any higher and you trigger 15% Employer NI. If you also want a State Pension qualifying year, take £6,500 (the Lower Earnings Limit) accepting £225 of Employer NI. If you employ other staff and can claim the £10,500 Employment Allowance, the optimal salary is £12,570 (full Personal Allowance) because the EA covers all employer NI on that salary.

Three major changes hit company directors in April 2025: the Employer NI Secondary Threshold dropped from £9,100 to £5,000 — meaning employer NI now kicks in at a much lower salary; the Employer NI rate increased from 13.8% to 15%; and Employment Allowance doubled from £5,000 to £10,500, and the previous £100K Class 1 NIC restriction was removed so all eligible employers can claim. The combined effect: the old £9,100 "optimal salary" is no longer optimal for sole directors — £5,000 is now the right answer unless you have Employment Allowance available.

The first £500 of dividends is tax-free (Dividend Allowance). Beyond that, dividends are taxed at 8.75% in the basic rate band (income up to £50,270), 33.75% in the higher rate band (£50,271-£125,140), and 39.35% in the additional rate band (above £125,140). Dividends do not attract National Insurance. They are also not Corporation Tax deductible (unlike salary), so the comparison between salary and dividends needs to factor in the company-side tax saving on salary.

Generally no. Taking zero salary wastes your £12,570 Personal Allowance — you have £12,570 of tax-free income available each year, and a small salary is the most efficient way to use it. Plus, if you take less than £6,500 in salary you don't earn a State Pension qualifying year, which costs you long-term. The optimal sole-director strategy is usually £5,000 or £6,500 salary plus the rest as dividends — never zero salary.

No — you cannot claim Employment Allowance if you are the only employee of the company who is also a director (the "single-director limited company" restriction). If you have at least one other paid employee or a second director on payroll earning above the Secondary Threshold, you can claim. Employment Allowance is now £10,500 per year (doubled from £5,000 in April 2025) and the previous restriction on companies with over £100K NIC bills has been removed, so all eligible employers can claim regardless of size.

Our standard limited company package is built from individual services: Annual Statutory Accounts £695/year, Corporation Tax Return (CT600) £395/year, Confirmation Statement £100/year, Director's Self Assessment £249 per director, Director-only Payroll £18/month (£216/year). A full director compliance bundle including monthly payroll typically lands around £1,655/year. We optimise your salary/dividend split as part of this — typically saving £2,000-£5,000 annually in tax. Full price list at /service-fees.

The dividend allowance is £500 for 2025/26 (frozen since April 2024 when it was reduced from £1,000). The first £500 of dividends each tax year is tax-free regardless of which tax band you fall into. Anything above £500 is taxed at the dividend rates (8.75% / 33.75% / 39.35%).

Yes, if your spouse legitimately owns shares. Dividends are paid based on shareholding, not work performed. Income-splitting between spouses can save significant tax if your spouse has unused Personal Allowance or sits in a lower tax band. However, HMRC's settlements legislation prevents artificial arrangements — the share issue must be genuine, fully paid for at proper value, and dividends must be proportionate to share class. Get this set up properly with a chartered accountant from the outset, not retrofitted as a tax-avoidance scheme.

The Lower Earnings Limit (LEL) is £6,500 for 2025/26. It's the salary level at which you start earning State Pension qualifying years even though you don't pay any National Insurance below the Primary Threshold of £12,570. For sole directors who can't claim Employment Allowance, paying salary below £5,000 means no Employer NI but no pension qualifying year either. Paying £6,500 means £225 of Employer NI but a qualifying year worth ~£300+ per year of additional State Pension in retirement (you need 35 qualifying years for full State Pension at ~£11,500/year). Generally worth paying the £6,500 to secure pension credits.

Yes — most UK lenders accept director dividends as income for mortgage affordability assessment, typically averaging your last 2-3 years of salary plus dividends. Different lenders have different policies — some use salary only, some use salary plus dividends, some use net profit retained in the company. Working with a mortgage broker experienced in limited company directors usually gets the best result. Don't artificially inflate salary just for a mortgage application — it's tax-inefficient and most lenders accept dividends anyway.