How directors are taxed (2026/27)
Directors of a limited company often pay themselves a small salary — commonly £12,570, the tax-free Personal Allowance — and take the rest of their income as dividends from company profit. Dividends are taxed more lightly than salary and don't attract National Insurance, which is why this is popular.
Dividend tax rates 2026/27
| Band | Dividend rate |
|---|---|
| Basic rate | 10.75% |
| Higher rate | 35.75% |
| Additional rate | 39.35% |
The first £500 of dividends is tax-free. Dividends sit on top of your salary, so the rate depends on your total income.
Example: £12,570 salary + £40,000 dividends
The salary uses the Personal Allowance. Of the £40,000 dividends, £500 is tax-free; most of the rest is taxed at 10.75%, with the portion above £50,270 at 35.75% — a dividend tax of about £4,246.
Is salary or dividends better?
It depends on corporation tax, NI and your total income. Since dividend rates rose for 2026/27, take tailored advice from an accountant.
Do dividends pay National Insurance?
No — dividends don't attract NI, unlike salary. That's a key reason directors use them.
More United Kingdom calculators
This calculator estimates personal dividend tax for a director in 2026/27 (England, Wales & NI thresholds) based on published HMRC rates and is for general information only — it is not financial or tax advice. It excludes corporation tax, National Insurance on salary, and Scottish bands. See GOV.UK. Source: GOV.UK.