Question 1

What is the optimal salary for a company director in 2025/26?

Accepted Answer

For most single-director companies, the optimal salary is £12,570 — the personal allowance threshold. This means zero income tax on your salary. Some directors with Employment Allowance qualification may benefit from a higher salary up to the NI threshold.

Question 2

Why are dividends more tax-efficient than salary?

Accepted Answer

Dividends don't attract National Insurance (saving up to 13.8% employer NIC + 8% employee NIC), and are taxed at lower rates: 8.75% basic vs 20% income tax. However, salary reduces corporation tax, so the optimal balance depends on your specific numbers.

Question 3

How does employer NIC affect the salary vs dividends decision?

Accepted Answer

Employer NIC at 13.8% is a significant hidden cost of salary. On a £50,000 salary above the NI threshold, employer NIC alone costs £5,171. This is why most tax advisors recommend a low salary topped up with dividends.

Question 4

Do I qualify for Employment Allowance?

Accepted Answer

Employment Allowance gives your company up to £10,500 off its employer NIC bill. Most single-director companies qualify unless the director is the sole employee AND the company's only activity. If you have any other employees (even your spouse working part-time), you almost certainly qualify.

Salary vs Dividends Calculator 2025/26

Frequently asked questions

Related calculators

Corporation Tax

Dividend Tax

Income Tax