UK Dividend Tax & Salary vs Dividend Calculator

About the UK Dividend Tax & Salary vs Dividend Calculator

Enter your dividends and your other income, and the calculator works out the UK tax on the dividends the way HMRC does: your salary, pension and other income first, then savings interest, then dividends on top. The first £500 of dividends is tax-free (the dividend allowance); the rest is taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above that. Dividends inside your unused Personal Allowance are tax-free too.

If you run your own limited company, switch to Salary or dividends?: enter the company’s profit before your pay and it compares paying yourself a salary with paying dividends, with employer and employee National Insurance, Employment Allowance, Corporation Tax with marginal relief and your Income Tax, and finds the salary that leaves you the most. The previous tax year is in the calculator too, for Self Assessment returns. Everything is worked out in your browser.

Common uses

• Checking the dividend tax on a Self Assessment return before you send it.
• Deciding how much to pay yourself from a limited company this year.
• Seeing how much a pension payment or Gift Aid saves on higher rate dividend tax.
• Comparing the cost of a salary at the Lower Earnings Limit with £12,570.

Dividend tax rates and allowances

• Dividend allowance: £500 a year, whatever your tax band. It is a 0% rate, so those dividends still count towards your band.
• Basic rate band: 10.75% on dividends. Higher rate band: 35.75%. Additional rate band: 39.35%.
• Personal Allowance: £12,570, reduced by £1 for every £2 of adjusted net income above £100,000 and gone at £125,140. Dividends inside it are tax-free.
• Bands: the basic rate band is the first £37,700 of taxable income, the higher rate band runs to £125,140 and the additional rate applies above. Gift Aid and personal pension payments with relief at source widen the bands by the amount paid × 1.25.
• Leave out dividends from shares in an ISA, which are tax-free, and dividends earned inside a pension.

Sources: GOV.UK: Tax on dividends, Income Tax rates and allowances.

How the tax is stacked

Income Tax charges each kind of income in a fixed order: earnings, pensions, profits and rent first, then savings interest, then dividends as the top slice (HMRC SAIM1090). So dividends fall into the higher rate band only when your other income has already used the basic rate band.

Savings interest has its own allowances: the 0% starting rate for savings on up to £5,000 of interest, reduced by every £1 of other income above your Personal Allowance, and the Personal Savings Allowance of £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nothing for additional rate taxpayers (GOV.UK).

The Personal Allowance is set against your income in the way that gives the lowest tax. HMRC’s worked example in SAIM1110 splits it between employment income, interest and dividends to do so, and the calculator tries every split that can matter and shows the one it used.

Salary or dividends: what the comparison counts

The company’s profit before your pay is split into a salary and dividends:

• Employer NI: 15% of the salary above the Secondary Threshold of £5,000. Employment Allowance takes up to £10,500 a year off it, but not if you are the company’s only director and the only employee paid above that threshold (eligibility).
• Corporation Tax on the profit left: 19% up to £50,000, 25% from £250,000, and in between 25% less marginal relief of 3/200 × (£250,000 − profit), so each pound there costs 26.5%. Associated companies divide the limits (HMRC rates, CTM03925).
• Dividends are what is left after Corporation Tax, less anything you choose to keep in the company.
• Your NI: 8% of the salary between £12,570 and £50,270 and 2% above. Directors are assessed on a year’s earnings (NIM12001), so the yearly thresholds apply however the salary is paid.
• Your Income Tax on the salary, the dividends and any other income, as above.

The calculator searches salaries from nothing to all of the profit, every threshold included, and reports the one with the most take-home, next to the usual choices: £12,570 (the Personal Allowance), the Lower Earnings Limit, £5,000 and no salary. A salary of at least the Lower Earnings Limit is treated as if NI were paid and protects your National Insurance record for the State Pension (GOV.UK).

Scotland

Scottish taxpayers pay Scottish rates on their salary, pension and most other income: starter 19%, basic 20%, intermediate 21%, higher 42%, advanced 45% and top 48%. Dividends and savings interest are taxed at the same rates as in the rest of the UK, with the UK bands (GOV.UK). The Personal Savings Allowance follows the rate your income is taxed at, as HMRC’s tax return notes describe: £500 when taxable at 42%, nothing at 45% or 48%.

Limitations

• Not included: Marriage Allowance, Blind Person’s Allowance, the High Income Child Benefit Charge, student loan repayments, foreign tax credits and income from trusts.
• The salary or dividends comparison assumes a 12-month accounting period, no other staff using the Employment Allowance, profits the company can legally pay out, and no employer pension contributions or benefits in kind.
• It also leaves out savings interest of the director, and dividends the company itself receives from other companies (they are added to its profits when the Corporation Tax limits are applied).
• Welsh taxpayers pay the same rates as England and Northern Ireland, so they use that option.
• An estimate for information, not tax advice. Ask an accountant before you set your salary.

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