For a sole director whose company pays 19% corporation tax, a £12,570 salary leaves £358.37 more in your pocket than a £6,708 salary, even after £1,135.50 of employer National Insurance.
A sole director whose company makes £55,000 of profit before paying them, with the rest taken as dividends
| Salary of £12,570 | |
|---|---|
| Employer National Insurance: 15% of £7,570 | £1,135.50 |
| Corporation tax: 19% of £41,294.50 | £7,845.96 |
| Salary | £12,570.00 |
| Dividends (profit left after salary, National Insurance and corporation tax) | £33,448.54 |
| Less dividend tax: £32,948.54 at 10.75% | −£3,541.97 |
| In your pocket | £42,476.57 |
| Salary of £6,708 | |
| Employer National Insurance: 15% of £1,708 | £256.20 |
| Corporation tax: 19% of £48,035.80 | £9,126.80 |
| Salary | £6,708.00 |
| Dividends (profit left after salary, National Insurance and corporation tax) | £38,909.00 |
| Less dividend tax: £32,547 at 10.75% | −£3,498.80 |
| In your pocket | £42,118.20 |
| Difference | |
| With a £12,570 salary | £42,476.57 |
| Less with a £6,708 salary | −£42,118.20 |
| Better off with £12,570 | £358.37 |
With the lower salary, £5,862 of your personal allowance is left for dividends, so £32,547 is taxed after the £500 allowance.
England. The director is the only employee, so the company cannot claim the Employment Allowance. All assumptions and rates
Assumptions and rates
- England. The director is the only employee, so the company cannot claim the Employment Allowance.
- Profit after salary stays under £50,000, so corporation tax is 19%. No associated companies.
- All profit after tax is paid out as dividends in 2026/27. No other income.
- Figures are rounded to the nearest penny.
- Employer National Insurance 15% above £5,000; employee National Insurance 8% above £12,570
- Corporation tax 19%
- Personal allowance £12,570; £500 dividend allowance; dividends 10.75% in the basic rate band
Why take a salary at all?
Salary is a cost to the company, so it reduces corporation tax, and with no other income a salary up to £12,570 is free of income tax and employee National Insurance. It also builds your State Pension: a salary of at least £6,708, the lower earnings limit, counts as a qualifying year without you paying any National Insurance.
Why not £5,000, where employer National Insurance starts?
£5,000 is below the £6,708 lower earnings limit, so the year would not count towards your State Pension. That is why the comparison here starts at £6,708.
Why does £12,570 come out ahead after employer National Insurance?
The extra £5,862 of salary costs the company £879.30 in employer National Insurance, but both amounts are deducted before corporation tax, and the salary reaches you tax-free. Paid as a dividend instead, the same money is first taxed at 19% in the company and then at 10.75% in your hands once your allowance is used. In this example that leaves the higher salary £358.37 ahead.
What if my company can claim the Employment Allowance?
Then the employer National Insurance on a £12,570 salary is covered by the allowance, which is up to £10,500 a year, and the case for £12,570 is stronger still. A company can usually claim it when it has another employee paid above £5,000, for example a second director. A company whose only employee is its sole director cannot.
What about a salary above £12,570?
Each extra pound of salary then costs 20% income tax, 8% employee National Insurance and 15% employer National Insurance. For a basic rate taxpayer, dividends usually leave more in your pocket from that point.
Does the company's profit change the answer?
It moves it further towards £12,570. Where profit is above £50,000, corporation tax is higher than 19% because of marginal relief and the 25% main rate, so the tax saved by paying salary is larger.
What this doesn’t cover
- Companies with other employees, or more than one director on the payroll.
- Scottish income tax rates on salary.
- Other income, including rent or a second job.
- Pension contributions made by the company.
- Companies caught by IR35 or with associated companies.
- Student loan repayments.
Common questions
Not as the employee: employee National Insurance starts above £12,570. The company pays 15% employer National Insurance on the part above £5,000, which is £1,135.50.
No. If the director is the only employee paid above the £5,000 secondary threshold, the company cannot claim it.
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