Why salary + dividends beats a big salary
A limited company is a separate legal person, so its profit isn't automatically yours — you extract it, and how you extract it decides the tax. The standard efficient pattern for a director-shareholder is a small salary plus dividends:
- The salary (around the £12,570 personal allowance) is deductible against corporation tax, escapes income tax, and — above £6,725 of profits — counts as a qualifying year for your state pension.
- Dividends come from post-corporation-tax profit and pay no National Insurance at all, taxed at 8.75% (basic), 33.75% (higher) and 39.35% (additional) after a £500 allowance.
The calculator runs corporation tax on the profit left after your salary, then stacks dividend tax on top of the salary to find your real take-home.
Watch the director's loan trap Taking money out that isn't salary or a properly declared dividend creates an overdrawn director's loan. Leave it outstanding nine months after year-end and the company pays a 33.75% S455 charge. Plan the split instead of drawing "as needed".
When the simple pattern changes
Two directors, the Employment Allowance, pension contributions, profits above £50,000 and an upcoming fundraise can all shift the optimal number. This tool gets you the shape of the answer; we get you the exact one. See our pricing.
