Why the mix wins

Salary and dividends are taxed by different rules. Salary gets Income Tax and both kinds of National Insurance: 8% employee contributions over £12,570, and 15% employer contributions over £5,000. Dividends skip National Insurance entirely, but the company can only pay them out of profits after Corporation Tax, and they are taxed at their own rates.

The Personal Allowance of £12,570 is the hinge. Take it as salary and it is taxed at nothing: no Income Tax because it is within the allowance, no employee NI because it sits exactly at the primary threshold.

The sums on £60,000 of company profit

Salary plus dividends. Salary £12,570. Employer NI: (£12,570 – £5,000) at 15% = £1,135.50. Remaining profit £46,294.50, Corporation Tax at 19% = £8,795.96. Dividends available £37,498.54. Dividend tax: £500 allowance free, £36,998.54 at 10.75% = £3,977.34. Total tax £13,908.80. You keep £46,091.20.

All salary. The company can afford gross salary of £52,826.09 once employer NI of £7,173.91 on top is counted in the £60,000. Income tax on that: £40,256.09 at 20% = £8,051.22. Employee NI: £40,256.09 at 8% = £3,220.49. Total tax £18,445.62. You keep £41,554.38.

The mix is ahead by £4,536.82. Note the company is assumed to have no other employees, so the £10,500 Employment Allowance is out of reach: a company whose only employee is its director cannot claim it.

The rules dividends have to follow

Dividends need distributable profits. Pay a dividend when the company has nothing left after Corporation Tax and it is an illegal dividend, repayable. They must also follow the shareholdings: own 60% of the shares, get 60% of each dividend, unless the company has different share classes.

When a bigger salary makes sense

Lenders like salary. A mortgage application built on £12,570 of salary and £40,000 of dividends reads worse than one built on a solid salary, whatever your accountant says. Salary also builds National Insurance credits straightforwardly, and pension annual allowance rules treat salary and dividends differently. This is why the “£12,570 plus dividends” line is a starting point, not a religion.

Sources

All pages checked 20 October 2026.

• Tax on dividends: https://www.gov.uk/tax-on-dividends
• Income Tax rates: https://www.gov.uk/income-tax-rates
• Rates and thresholds for employers 2026 to 2027: https://www.gov.uk/guidance/rates-and-thresholds-for-employers-2026-to-2027
• Employment Allowance eligibility: https://www.gov.uk/claim-employment-allowance/eligibility
• Corporation Tax rates: https://www.gov.uk/corporation-tax-rates

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