Freedom Isn’t Free UK Personal Finance
Self-Employed
Salary vs Dividends: The Director's Split for 2026/27
Most one-person companies pay a small salary up to the GBP 12,570 Personal Allowance, then take the rest as dividends. Salary is deductible against Corporation Tax; dividends are paid from post-tax profit but carry no National Insurance. After the Nov 2025 Budget raised dividend rates, the dividend advantage has narrowed but usually still wins.
Salary vs dividends: the key figures (2026/27)
| Item | Figure |
|---|---|
| Personal Allowance | GBP 12,570 - the usual salary level for a director |
| Dividend allowance | GBP 500 tax-free, on top of the Personal Allowance |
| Dividend rate (basic band) | 10.75% (up from 8.75% before the Nov 2025 Budget) |
| Dividend rate (higher band) | 35.75% (up from 33.75%) |
| Dividend rate (additional band) | 39.35% |
| Employee NIC | 8% on salary from GBP 12,570 to GBP 50,270, then 2% |
| Employer NIC | 15% on salary above the GBP 5,000 Secondary Threshold |
| Employment Allowance | GBP 10,500, but a company whose only paid employee is a single director cannot claim it |
| Corporation Tax | Salary is a deductible cost; dividends are paid from profit after Corporation Tax |
| 60% trap | Personal Allowance tapers GBP 1 for every GBP 2 of income over GBP 100,000, gone at GBP 125,140 |