Salary and Dividend Tax Calculator

Find out exactly how much you’ll take home this tax year

As a director of a limited company, combining salary and dividends can help you maximise tax efficiency and increase your take-home pay. Use our straightforward calculator below to instantly find out how much tax you’ll pay, and what your actual take-home pay will look like based on your annual salary and dividends.

Calculate Your Take-Home Pay

Enter your gross salary and expected annual dividends to get a detailed breakdown of your income and tax liability:

Calculator Inputs:

• Gross Salary (£)

• Dividends (£)

Calculator Results:

• Total Income

• Taxable Income

• Income Tax on Salary

• Employee National Insurance Contributions (NIC)

• Employer National Insurance Contributions (paid by company)

• Dividend Tax Payable

• Total Tax and NIC

• Your Take-Home Pay

Understanding Salary and Dividends for Company Directors

Understanding Salary and Dividends for Company Directors When operating as a limited company, directors typically choose a salary that’s tax-efficient (often around the personal allowance threshold) combined with dividend payments from company profits. 

Benefits of combining salary and dividends include:

• Lower Overall Tax Rate: Dividends typically incur less tax than salary, providing greater tax efficiency.

• Flexibility: Dividends can be issued at any time when your company has sufficient retained profits.

• Reduced NIC Liability: Dividends do not incur NIC contributions, unlike salary.

Salary and Dividend Tax Explained: Your Comprehensive Guide to Maximising Take-Home Pay

Understanding salary and dividend tax can be complex. Yet, it remains crucial for company directors and shareholders who want to maximise their earnings legally and efficiently. As the landscape of UK taxation continually evolves, staying informed about how salaries and dividends are taxed can significantly enhance financial outcomes.

In this extensive guide, we will thoroughly explore the intricacies of salary and dividend taxation, dissecting the current rules for the 2025 to 2026 tax year. We will delve deeply into tax bands, rates, allowances, practical tax-planning strategies, and the interplay between salary and dividends. By the end, you will have a robust understanding of how salary and dividend taxation operates, empowering you to make informed financial decisions. 

Understanding Salary Income Taxation

In the United Kingdom, salary income is subject to income tax and National Insurance contributions. These contributions fund various government services including healthcare, education, and pensions. For the 2025 to 2026 tax year, the government has kept existing income tax bands, but National Insurance thresholds and employer contributions have changed. Salary is primarily taxed under the Pay As You Earn (PAYE) system. 

Employers deduct tax and National Insurance contributions directly from your monthly pay. It is important to note that income tax bands differ from National Insurance thresholds, adding complexity to salary taxation. For the 2025 to 2026 tax year, the personal allowance remains at £12,570. 

Earnings exceeding this allowance are taxed at increasing rates. Salaries between £12,571 and £50,270 incur a basic rate of 20 percent. Income between £50,271 and £125,140 is taxed at 40 percent, and income above £125,140 is taxed at 45 percent. 

Income Tax Rates and Bands (2025/26)

National Insurance contributions add further to salary taxation complexity. From April 2025, employees pay 8 percent on earnings between £12,570 and £50,270, and 2 percent on earnings above £50,270. Employers pay 15 percent NIC on all earnings above £5,000 which is a reduction from the previous £9,100 threshold.

Note: From April 2025, employer NIC increases to 15 percent, and the threshold reduces to £5,000.

Impact of Salary on Personal Allowance

Another critical consideration is how a salary above £100,000 affects your personal allowance. The allowance reduces by £1 for every £2 earned above this point. At £125,140, the allowance is lost entirely, increasing the effective rate of tax.

Dividend Taxation

Dividends are a distinct type of income, paid to shareholders from company profits. Unlike salary, they are not taxed through PAYE and must be declared through Self Assessment. 

Dividends are paid from post-corporation tax profits, which makes them more tax-efficient than salary. 

Dividend Allowance and Rates for 2025/2026

For the 2025 to 2026 tax year, the dividend allowance stands at £500. This allowance means that the first £500 of dividend income you receive is tax free, regardless of other taxable income you have.

Beyond this allowance, dividends are taxed at different rates depending on your total taxable income. Basic rate taxpayers pay dividend tax at 8.75 percent on dividend income between £12,571 and £50,270. Higher rate taxpayers, those with taxable income between £50,271 and £125,140, pay dividend tax at 33.75 percent. For additional rate taxpayers, earning over £125,140 annually, dividend income is taxed at 39.35 percent.

Interaction Between Dividend Income and Personal Allowance

Dividend income can also impact your personal allowance. If your combined salary and dividend income exceed £100,000, the reduction in personal allowance described above applies equally to dividend income. Careful consideration and meticulous financial planning are necessary to manage this potential additional tax liability effectively.

Balance Between Salary and Dividends

Given the differing taxation structures, strategically balancing salary and dividends can significantly optimise your overall tax efficiency. Generally, directors and shareholders of limited companies benefit most from paying themselves a modest salary topped up by dividends. This balance allows them to utilise their personal allowance fully, while avoiding higher rates of National Insurance associated with larger salaries.

A common strategy is paying a salary equivalent to the personal allowance, £12,570 for the tax year, as this incurs no income tax and only minimal National Insurance contributions. Any additional remuneration required for living expenses or personal financial goals is then paid as dividends from company profits, thus reducing overall taxation.

Practical Example of Salary and Dividend Planning

To illustrate, consider a director whose total income goal for the year is £50,000. If they pay themselves entirely through salary, their overall tax and National Insurance contributions will be significantly higher compared to combining salary and dividends. By setting a salary at the personal allowance (£12,570) and paying the remainder (£37,430) as dividends, the director significantly reduces their total tax and NIC liabilities, improving their take home pay considerably.

Dividend Payment Frequency and Flexibility

One of the key advantages of dividends as a remuneration method is flexibility. While most companies distribute dividends quarterly, limited companies can issue dividends annually, biannually, monthly, or whenever surplus profits are available. This flexibility allows directors and shareholders to tailor their remuneration precisely to their personal financial circumstances and tax strategies.

ISA Dividends

For additional tax efficiency, UK residents can consider holding shares within an Individual Savings Account (ISA). ISA dividends are exempt from dividend tax, allowing individuals to receive dividend income free of personal tax, up to the annual ISA limit of £20,000 for the 25/26 tax year. Furthermore, capital gains within an ISA are exempt from Capital Gains Tax. Incorporating ISAs into your tax planning can significantly enhance overall financial efficiency.

Tax Compliance and Responsibilities

While dividends provide notable flexibility and tax advantages, they come with additional responsibilities. Individuals receiving dividend income must complete an annual Self Assessment tax return to declare dividend payments. HM Revenue and Customs (HMRC) expects accurate and timely reporting, with penalties for incorrect or late submissions.

Therefore, maintaining meticulous financial records and engaging professional support is essential to managing dividend taxation effectively. Accurate record keeping ensures compliance and helps identify opportunities for further tax optimisation.

Recent and Upcoming Changes

Key changes from April 2025 include the drop in the employer NIC threshold to £5,000 and the rise to 15 percent in contribution rate. These affect the cost of salaries paid by companies. The dividend allowance remains low at £500, making planning even more crucial. Dividend tax rates remain unchanged, but the interaction with salary, personal allowance and corporation tax means the landscape is more complex than ever. 

How Ascentis Accountants Can Help

Navigating salary and dividend tax is complex and continually changing. It demands thorough planning, detailed record keeping, and proactive compliance. At Ascentis Accountants, we specialise in guiding directors, shareholders, and limited companies through this complexity. Our dedicated team offers personalised strategies designed specifically to optimise your financial outcomes, ensuring you maximise your take home pay while remaining fully compliant with UK tax regulations.

From comprehensive tax planning to ongoing advisory services, our professionals are available to provide tailored, insightful, and actionable guidance. For assistance with salary and dividend planning, tax returns, company incorporation, or other financial planning matters, contact our friendly, knowledgeable team today.

By working together, we can ensure you leverage every available advantage from the UK’s tax framework, maximising your earnings potential both today and into the future.