Glossary · UK
What is Dividend vs Salary Profit Extraction?
The decision of how a company director takes income, balancing salary, employer NI and dividend tax.
Full Definition
Dividend vs salary profit extraction is the planning choice owner-directors face when deciding how to pay themselves from a limited company. A small salary up to the National Insurance thresholds can preserve State Pension entitlement and be deductible against Corporation Tax, while dividends are paid from post-tax profits and taxed at lower personal rates. For 2026/27 the dividend allowance is GBP 500, with dividend tax at 10.75% basic, 35.75% higher and 39.35% additional rate. Salary attracts Income Tax, employee NI at 8% and employer NI at 15% above GBP 5,000, but the Employment Allowance may offset employer NI. Dividends carry no NI but are not Corporation Tax deductible. The optimal mix depends on profit levels, other income and personal circumstances. This is general information, not advice; model options with the calculator and check gov.uk.
How Dividend vs Salary Profit Extraction is calculated
dividend_tax = max(0, dividends - 500) x dividend_rate- dividends
- Total dividends received in the tax year
- dividend_rate
- 10.75% basic, 35.75% higher or 39.35% additional
Worked example: Dividends GBP 20,000, all in basic band: tax = (20,000 - 500) x 0.1075 = 19,500 x 0.1075 = GBP 2,096.25.