Salary, dividend or pension?

What each route actually leaves you, once every layer of tax has taken its cut.

Tax year 2026/27
UK limited company

Your company this year

What the company makes after business costs, but before any salary, pension or dividend to you.

The two ways to pay yourself

Salary
Dividend

Optional third route

Paid by the company straight into your SIPP. Not out of your salary. It comes off the profit before the salary and dividend above.
More settings
Post-tax profit still sitting in the company. Adds to what you can pay as a dividend.
Employment or rental income outside this company.
Used to value the pension pot after the tax you will eventually pay on it.
A company whose only employee is its sole director cannot claim this. Leave it off unless you have another employee.
What this plan is worth to you
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Cash in hand
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Into your pension
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Left in company
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Total tax
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Salary or dividend: what £100 of profit is worth

Salary carries employer NI on the way out and income tax plus employee NI on the way in. A dividend carries corporation tax then dividend tax. A pension contribution carries neither, and is shown after the tax you would pay drawing it in retirement.

Where every pound of profit goes

The same profit, three ways

The full calculation

Rates used: corporation tax 19 percent to £50,000 of profit, 25 percent above £250,000, marginal relief between. Personal allowance £12,570. Basic rate to £50,270. Dividend allowance £500, then 10.75 percent basic and 35.75 percent higher. Employee NI 8 percent from £12,570 to £50,270, then 2 percent. Employer NI 15 percent above £5,000. Pension annual allowance £60,000. All 2026/27.

What this does not cover: student loans, the high income child benefit charge, associated companies, VAT, benefits in kind, salary sacrifice, or a company with more than one shareholder. It assumes a twelve month accounting period and that dividends are covered by distributable reserves.

Prepared by Absolv, the founders accountant. A planning tool, not a substitute for advice on your own facts.

Questions founders ask - answered with the arithmetic

Should I take a salary or a dividend from my limited company?

On £50,000 of profit for 2026-27, a £12,570 salary with the balance paid as a dividend leaves you £38,862. Taking a £30,000 salary instead leaves £36,921, so the smaller salary is worth £1,941 more. A dividend wins above the personal allowance because it carries no National Insurance, only corporation tax and then dividend tax.

What is the most tax efficient director salary in 2026-27?

A salary of £12,570, the personal allowance. Below that you leave allowance unused, and above it every extra pound costs 20 percent income tax, 8 percent employee National Insurance and 15 percent employer National Insurance on top. A company whose only employee is its sole director cannot claim the Employment Allowance, so there is nothing to offset that employer cost.

Is a company pension contribution better than a dividend?

On the margin, yes. £100 of company profit is worth £85.00 paid into your pension, valued after the 20 percent tax you would pay drawing it in retirement, against £72.29 taken as a dividend and £62.61 taken as salary. A pension contribution escapes corporation tax and both National Insurance charges, but you cannot touch the money until pension age.

This is the general shape - your own numbers will move it

The planner assumes a single shareholder, a twelve month accounting period, and no student loan, benefits in kind or other companies in the group. If any of that is wrong for you then the answer moves, sometimes by a lot.

Absolv is a chartered accountancy firm for UK founders. We file the accounts and run the payroll as well as answering the question, so the plan and the filings agree with each other.

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More calculators - free, and no email wall

Corporation tax calculatorThe 19 percent and 25 percent rates, and the marginal relief band in between. Dividend tax calculatorWhat a given dividend costs you personally, once your salary is taken into account. SEIS and EIS relief calculatorWhat an investor gets back, and what that means for your raise.