Updated for 2026/27 (26 October 2026). Dividend tax rose by 2 percentage points from 6 April 2026: 10.75% basic rate and 35.75% higher rate, with the additional rate unchanged at 39.35% and a £500 dividend allowance (GOV.UK: tax on dividends). The calculator also now applies the Personal Allowance taper above £100,000. Results are estimates for England, Wales and Northern Ireland; Scottish income tax bands are not modelled.
What's the tax-efficient salary and dividend split for a UK Ltd director?
For 2026/27, a common pattern for a single-director company is a £12,570 salary (the Personal Allowance) with the rest drawn as dividends. Corporation tax is 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between. Dividends above the £500 allowance are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate).
Key takeaways
- A £12,570 salary uses your Personal Allowance; the company pays 15% employer NI on the part above £5,000 (£1,135.50)
- Corporation tax: 19% under £50k profit, 25% over £250k, marginal relief between
- Dividend allowance for 2026/27 is £500, and it still uses up part of your tax band
- If you take all profit out as salary and dividends every year, a sole trader keeps more at every profit level in the table below on 2026/27 rates
- The Ltd advantage now comes mainly from leaving profit in the company, employer pension contributions or timing dividends across tax years
Editorial: Calculator maintained by the FreelanceToolkit UK editorial team using HMRC's published 2026/27 rates: corporation tax 25% main / 19% small profits, dividend tax 10.75% / 35.75% / 39.35%, dividend allowance £500, personal allowance £12,570. Editorial policy · Sources & methodology · How we test tools.
In this guide
This calculator shows what a UK limited-company director actually keeps after Corporation Tax, salary tax, employer/employee NI, and dividend tax at 2026/27 rates. It uses the standard freelance-Ltd extraction pattern: a salary (typically £12,570), then dividends, with a choice of taking all profit, staying within the basic-rate band, or a custom amount. The comparison with sole-trader take-home appears below.
Worked example
You take a £12,570 salary (company pays £1,135.50 employer NI), leaving £66,294.50 of profit. Corporation tax with marginal relief is £13,818, so £52,476 is available. Taking it all as dividends: the first £500 is covered by the allowance, £37,200 is taxed at 10.75% and the remaining £14,776 at 35.75%, giving dividend tax of £9,282. Take-home is about £55,765, against about £57,711 as a sole trader on the same £80,000 profit. Taking everything out, the sole trader keeps about £1,950 more; a Ltd only comes out ahead if you leave profit in the company or use employer pension contributions.
At-a-glance comparison
| Profit before extraction | Sole trader take-home | Ltd (efficient extraction) take-home | Difference |
|---|---|---|---|
| £30,000 | ~£25,470 | ~£24,400 | -£1,070 (sole trader keeps more) |
| £50,000 | ~£40,270 | ~£38,860 | -£1,410 (sole trader keeps more) |
| £70,000 | ~£51,910 | ~£51,040 | -£870 (sole trader keeps more) |
| £100,000 | ~£69,310 | ~£65,210 | -£4,100 (sole trader keeps more) |
| £150,000 | ~£92,040 | ~£85,110 | -£6,930 (sole trader keeps more) |
2026/27 rates, England/Wales/NI. Assumes a £12,570 director salary, no other income, no Employment Allowance, and all post-tax profit taken as dividends in the same year. Accountant fees not included. Leaving profit in the company changes the result: use the calculator above.
Decision tree
Answer these questions in order — the first 'yes' with a clear steer usually gives you the answer.
- Do you need to take all the profit out each year?
On 2026/27 rates a sole trader usually keeps more. Run your own numbers above before incorporating. - Is your profit under about £50k?
Sole trader usually keeps more, before even counting Ltd accountancy costs. - Can you leave profit in the company or pay employer pension contributions?
This is where a Ltd can come out ahead: tax is deferred until you draw the money. - Over £100k?
Watch the Personal Allowance taper (£100k–£125,140). Company pension contributions and retained profit are the main planning levers. - Do you want to retain profit inside the company?
Ltd only — sole traders can't defer income. - Are you at risk of the £100k personal allowance taper as a sole trader?
Ltd gives more control over tax-year income.
Sources & official references
Every rate and threshold in this guide traces back to a published UK official source. All checked for the 2026/27 tax year (26 October 2026).
Related on FreelanceToolkit UK
Your numbers
Your take-home
Company side
| Item | Amount |
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Personal side
| Item | Amount |
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Comparison
How the maths works
A UK limited company stacks two tax systems on top of each other: the company pays corporation tax on its profits, and you pay personal income tax on whatever you draw from it.
Step 1 — company profit
Revenue minus expenses minus director salary minus employer NI on that salary = profit subject to corporation tax.
Step 2 — corporation tax (2026/27)
- Small profits rate: 19% on first £50,000
- Main rate: 25% on profit over £250,000
- Marginal relief band: 26.5% effective on the £50k–£250k slice
Step 3 — director salary sweet spot
Typical sweet spot for single-director companies is £12,570 (the Personal Allowance). The salary costs £1,135.50 in employer NI but saves more in corporation tax. Single-director companies can't claim Employment Allowance.
Step 4 — dividends (2026/27)
- First £500 tax-free (dividend allowance). It still uses up part of your basic or higher-rate band
- Basic-rate dividend tax: 10.75%
- Higher-rate dividend tax: 35.75%
- Additional-rate dividend tax: 39.35% (over £125,140)
Worked examples
Inputs: £80k revenue, £5k expenses, £12,570 salary, take all dividends.
Result (2026/27): Employer NI £1,136. Corp tax £12,493. Dividends £48,801. Dividend tax £7,968. Take-home ~£53,404.
Sole-trader on the same £75k profit takes home ~£54,811, about £1,400 more. Taking all profit out, the Ltd structure doesn't pay at this level; its advantage shows up when you retain profit or use employer pension contributions.
Inputs: £150k revenue, £8k expenses, £12,570 salary, dividends capped at basic-rate band.
Result (2026/27): Profit after salary/NI ~£128.3k. Corp tax ~£30.2k. Dividends £37,700 (capped at the basic-rate band). Dividend tax £3,999 because the dividends stay at 10.75%. Take-home ~£46,271, with ~£60,300 retained in the company for next year or pension.
Why this strategy: paying yourself only the basic-rate dividend keeps your personal tax bill tiny. The retained profit becomes a tax-deferred buffer for slower years or boosts pension contributions.
Inputs: £40k revenue, £2k expenses, £12,570 salary, all dividends.
Result (2026/27): Corp tax £4,616. Dividends £19,679. Dividend tax £2,062. Take-home ~£30,187.
Sole-trader on the same £38k profit takes home ~£31,388, about £1,200 more, before the ~£1,000 annual accountant fee a Ltd typically needs. At this level a sole trader is clearly simpler and better off.
On 2026/27 rates, not by tax alone if you take all the profit out each year: the higher dividend rates mean a sole trader keeps more at every level in the table above. A Ltd can still come out ahead when you leave profit in the company, pay employer pension contributions, or need limited liability, but factor in the £800–£1,500/year accountant cost too.
It's the Personal Allowance — no income tax for you, no employee NI (because the Primary Threshold is £12,570 in 2026/27). The company pays £1,135.50 of employer NI on the bit above the £5,000 Secondary Threshold, but the salary is corporation-tax-deductible, so net cost is small.
Yes — and it's one of the most tax-efficient things a Ltd can do. Employer contributions are corp-tax-deductible and don't count toward your personal income for tax purposes. Annual allowance is £60,000 in 2026/27 (with carry-forward), but check tapered allowance if your adjusted income exceeds £260,000.
This calculator assumes you're outside IR35. If your engagements fall inside IR35 and your client treats you as a deemed employee, your company receives the net payment and the tax efficiency largely disappears. Use our IR35 quick-check if unsure.
No. Leaving profit in the company defers personal tax to a future year and gives you a cash buffer. The trade-off is the cash sits in the company, not in your bank account. Many directors take dividends up to the basic-rate threshold and leave the rest.
R&D tax credits, capital allowances on assets, Annual Investment Allowance, Scottish income tax bands, VAT and Flat Rate Scheme, and complex pension scenarios. For any of these, talk to an accountant.
HMRC rule introduced in 2016: companies where the only employee is also the only director can't claim it. If you employ at least one other person (even part-time), you qualify.
Deciding sole trader vs Ltd? Compare both side-by-side in our sole trader vs limited company calculator, or read the definitive sole trader vs Ltd guide and the should I start a limited company? decision guide.
If you've decided on Ltd: the contractor accountant guide covers what specialist firms offer, what they cost, and how to choose — see also the Ltd accounting checklist for the operational tasks an accountant handles.
Estimates for 2026/27 (England, Wales and NI) only. Not personal tax advice. Get a qualified accountant before making structural decisions.