Director Salary Optimiser

2026/27 tax year

The tax-efficient salary & dividend split for a UK director-shareholder — accounting for Employment Allowance eligibility, corporation-tax marginal relief, the dividend rate rise, pensions and more.

Your situation

Two directors (e.g. spouses)?Models two directors with their own allowances. Two directors both paid over £5,000 unlock the £10,500 Employment Allowance, and dividends are split for the lowest combined tax.

Company profit before director payProfit before any salary, employer NI or pension.

Distributable reserves carried forwardPast retained profit also available for dividends.

Associated companiesDivides the £50k/£250k CT marginal-relief limits.

Employment Allowance available?A sole director who is the only employee paid over £5,000 cannot claim it.

Secure a qualifying NI year?Floors salary at £6,708 (the LEL) so the year counts toward your State Pension. Only changes the result if the optimum would otherwise be lower.

Other personal incomeRental, other employment or pension income.

Student loan plan

Employer pension contributionCT-deductible, NI-free. Reduces profit available for dividends.

Goal

Take salary plus dividends up to the £50,270 basic-rate ceiling, then stop. Lowest average tax rate — any surplus profit is left in the company or pensioned rather than taxed at 35.75%.

Recommended salary

£12,570

Dividends

£37,700

Net take-home

£46,271

Why this salary

✓ Qualifying NI year secured

Even without the Employment Allowance (sole director), £12,570 wins: the 15% employer NI on the £5,000–£12,570 slice is outweighed by the corporation-tax relief on the salary plus the income-tax/NI-free pay to you.

Extraction: Extract up to the £50,270 basic-rate ceiling (the £500 dividend allowance is the tax-free slice within it), then stop. Beyond it dividends jump to 35.75%, so retaining the surplus (or routing it to pension) is cheaper than taking more now.

Effective tax on profit: 24.3%Total tax: £24,253Retained in company: £29,476

Employment Allowance not claimed — as a sole director you pay employer NI from £5,000. Adding a second employee/director paid over £5,000 could unlock the £10,500 allowance.

What if you extracted a bit more?

Where the next slice of company profit goes furthest, from your current split. Click a rate to see the workings.

As extra salary

CT-deductible (saves CT), but income tax + employee NI — and employer NI without the EA

£409 to you

marginal rate

As extra dividend

most cash now

Corporation tax first, then dividend tax — no NI

£472 to you

marginal rate

As pension payment

CT-deductible & NI-free — 0% now, taxed when drawn

+£1,000 to pension

saves £265 corporation taxtake-home unchanged

Retain in company

Only 26.5% corporation tax now

£735 kept

drawable later

Each column considers the same £1,000 of profit. Salary and pension are corporation-tax deductible, so neither bears the 26.5%CT; dividends and retained profit do. When all profit is already extracted, taking more salary or dividend isn't possible — but you can still divert into a pension, funded by taking less in dividends (less take-home now, more in the pot, less CT).

Full breakdown

Company

Profit before remuneration£100,000

Director salary(£12,570)

Employer NI(£1,136)

Taxable profit£86,295

Corporation tax(£19,118)

Profit after tax£67,176

Dividends paid(£37,700)

Retained in company£29,476

Director (personal)

Salary£12,570

Dividends£37,700

Total income£50,270

Income tax on salary(£0)

Employee NI(£0)

Dividend tax(£3,999)

Net take-home£46,271

Total tax (co. + personal)£24,253

Effective rate on profit24.3%

Marginal cost of each extra dividend pound

Combined corporation + dividend tax on the next £1 of profit taken as a dividend. The step up marks the basic→higher rate boundary — beyond it (52% effective at the main CT rate) retaining or pensioning profit is usually cheaper.

Figures are estimates for the 2026/27 tax year (England, Wales & NI), based on published rates. This is informational and not tax advice — confirm with your accountant before acting.