Quick answer, reviewed 11 October 2026
For 2026/27, dividend rates are 10.75%, 35.75% and 39.35%, with a £500 dividend allowance. The standard Personal Allowance is £12,570, employer NIC is generally 15% above £5,000, and the employee primary threshold is £12,570. There is no universally optimal salary: model the company tax, Employment Allowance, other income, pension needs and available distributable profits together.
Salary and dividends have different rules
A salary is remuneration processed through payroll. It can create Income Tax and National Insurance liabilities and may be deductible for Corporation Tax when the conditions are met. A dividend is a distribution to a shareholder from available profits; it is not deductible for Corporation Tax.
Dividends therefore come from profits on which the company may already have paid tax. Comparing only the personal rates misses that company tax cost. Also distinguish money available in the bank from distributable profits: a cash balance can include borrowings, VAT or cash needed for creditors.
The current 2026/27 figures
| Item | 2026/27 figure |
|---|---|
| Standard Personal Allowance | £12,570 |
| Dividend allowance | £500 |
| Basic-rate dividends | 10.75% |
| Higher-rate dividends | 35.75% |
| Additional-rate dividends | 39.35% |
| Employer Class 1 NIC, standard rate | 15% above £5,000 annual secondary threshold |
| Employee Class 1 NIC, category A | 8% above £12,570 to £50,270; 2% above that |
| Annual lower earnings limit | £6,708 |
Sources: HMRC's dividend guidance and 2026/27 payroll rates. The 8.75% and 33.75% dividend rates belong to 2025/26; they are no longer the current basic and higher rates.
The Personal Allowance reduces by £1 for every £2 of adjusted net income above £100,000, and is normally exhausted at £125,140. Dividend income uses tax bands even where covered by the dividend allowance. Scottish salary tax bands differ, while UK dividend rates still apply. Other income, benefits and reliefs can therefore change the calculation.
Why £12,570 is a modelling point, not a universal answer
A salary of £12,570 can use an otherwise available Personal Allowance without ordinary category A employee NIC under full-year director assumptions. However, it generally creates employer NIC when no relief offsets it. At the standard rate, (£12,570 minus £5,000) multiplied by 15% gives £1,135.50.
The salary and employer NIC may both reduce company taxable profits, subject to the deduction rules. The value of that reduction depends on the company's actual marginal Corporation Tax position, which may differ from its headline rate. Compare equal company cash costs, rather than comparing a £12,570 salary with a £12,570 dividend as if they cost the company the same amount.
A £5,000 salary ordinarily stays within the employer threshold, but is below the £6,708 lower earnings limit for 2026/27. It does not by itself establish a qualifying National Insurance year under the ordinary earnings rules. Other earnings or credits may matter. The old £9,100 figure is not the current primary threshold.
Employment Allowance can alter the comparison. The maximum is £10,500 for eligible employers, but a company whose only employee liable for employer NIC is its sole director cannot claim it. Check staffing and connected-company rules using HMRC's eligibility guidance. A director joining part way through the year also needs the appropriate payroll treatment.
A current dividend illustration
Assume a director has a £12,570 salary, £37,700 of dividends, no other income and a full Personal Allowance. The salary uses the allowance. The dividend allowance covers £500 while still using the basic-rate band. The remaining £37,200 is taxed at 10.75%, giving £3,999 of personal dividend tax.
This example does not include the company's Corporation Tax, employer NIC or other liabilities. It is not a claimed combined effective rate or a recommendation for every director to extract £50,270. Compare the company's profits and cash position, and reserve for both company and personal tax payments.
As a separate marginal illustration, £100 of profit taxed at 25% leaves £75 to distribute. If that entire dividend is taxed at 35.75%, personal tax is £26.8125 and the total tax is about £51.81. That calculation ignores allowances and other adjustments, but shows why adding 25% and 35.75% directly is not the correct method.
Dividends need profits and paperwork
Before declaring a dividend, check current management figures and the available accumulated distributable profits after relevant tax and losses. Confirm the rights attached to the shares and document the decision. Prepare a voucher showing the required details for each payment and retain board minutes, including where there is only one director.
Payments made without sufficient available profits can be unlawful and may need repayment or other correction. Repeated bank transfers labelled dividend are not enough to establish a valid distribution. See GOV.UK's salary, dividend and loan rules and Companies House's dividend guidance.
Employer pension contributions
Employer pension contributions can be useful for retirement provision, with potential company deductions where the conditions are met. They are not immediately spendable personal cash, and future access and withdrawal taxes need consideration. Choosing a pension contribution requires looking at the director's financial needs as well as current tax.
The standard annual allowance is £60,000, counting pension inputs from all sources. Tapering for high incomes, the £10,000 money purchase annual allowance after certain flexible access, and eligible carry forward from the previous three tax years can change the available allowance. See HMRC's annual allowance guidance.
Employer contributions and personal contributions have different rules, including the relevant-earnings restriction for personal relief. Confirm contribution timing and the full remuneration package before the company pays. Do not treat the allowance as a guaranteed tax-free withdrawal.
Other shareholders and an annual review
Dividends to a spouse or civil partner must follow genuine ownership and the rights attached to the shares. Transfers, dividend waivers, settlements rules and company documents can affect the outcome. Review an arrangement before changing shareholdings or assuming that income can simply be assigned to another person.
For a useful remuneration review, bring the profit forecast, current payroll, other personal income, share structure, pension inputs and intended cash withdrawals. Revisit the calculation if profits, employees or personal income change. Our Corporation Tax guide explains the company side of that model.
Frequently asked questions
What are the dividend tax rates for 2026/27?
They are 10.75% for basic-rate dividends, 35.75% for higher-rate dividends and 39.35% for additional-rate dividends. The dividend allowance remains £500.
Is £12,570 always the best salary for a director?
No. Model the employer NIC, Employment Allowance, company tax rate, other income and National Insurance position. A useful comparison uses equal company cash costs.
Can I pay dividends whenever there is cash in the company bank account?
No. Dividends require sufficient available distributable profits and must follow the share rights and proper company procedures. Keep the required minutes and dividend vouchers.
Reviewed against the linked primary sources on 11 October 2026. This guide gives general information; the tax treatment depends on your circumstances and the relevant tax or accounting period.
For support with your records and calculations, see our tax planning service or contact Angel Accountancy to discuss your requirements.