Salary or dividends?
An estimate of what a sole director takes home from their company's profit, paying it in four common ways, at 2026/27 rates.
£46,091.20
Salary £12,570, rest as dividends
| Option | Salary | Dividends | Corporation Tax | NI (both) | Income Tax | Take-home |
|---|---|---|---|---|---|---|
| Salary £12,570, rest as dividends | £12,570.00 | £37,498.54 | £8,795.96 | £1,135.50 | £3,977.34 | £46,091.20 |
| Salary £5,000, rest as dividends | £5,000.00 | £44,175.00 | £10,825.00 | £0.00 | £3,881.29 | £45,293.71 |
| No salary, all dividends | £0.00 | £47,850.00 | £12,150.00 | £0.00 | £3,738.85 | £44,111.15 |
| All as salary | £52,826.08 | £0.01 | £0.00 | £10,241.03 | £8,562.43 | £41,196.54 |
What changes the answer
Salary is a cost to the company, so it reduces Corporation Tax, but above £5,000 a year the company pays 15% employer National Insurance, and above £12,570 you pay employee NI. Dividends come from profit after Corporation Tax, with no NI, and are taxed at 10.75%, 35.75% or 39.35% in 2026/27 after a £500 allowance.
A salary around the personal allowance often works well for a sole director because it builds State Pension entitlement and uses the tax-free allowance. Other income, pension contributions, a second director or employee (which brings the Employment Allowance), student loans and Scotland's different bands all change the result.
What are the Corporation Tax rates?
19% on profits up to £50,000, 25% above £250,000, and a tapered rate in between (marginal relief).
Can I pay dividends whenever I like?
Only from profits left after tax (distributable reserves), and they must be properly declared, usually with board minutes and a dividend voucher.
Should I just take everything as dividends?
Not usually. A modest salary uses your personal allowance and counts towards your State Pension. Check with an accountant for your own position.
Your company's numbers, kept current.
Fenquist tracks income, costs and a Corporation Tax estimate as you go.