TAX & SALARY PLANNING

Salary and Dividend Calculator: Planning for the 2026 Tax Hike

Use our salary and dividend calculator to instantly see your optimal split. Minimise tax liability and maximise your take-home pay for 2025/26 and 2026/27 tax year.

⊛ 1 min read | By Brent Morrison | November 2025

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Autumn Budget 2025 Update

Impact Alert: The Chancellor's statement on 26 November 2025 has impacted the optimal salary/dividend split.

While the Dividend Allowance remains £500, changes to dividend tax means you should review your remuneration strategy immediately.

Common Questions About Salary & Dividends

How did the Autumn Budget 2025 change Dividend Tax?
The Budget announced a 2% increase in Dividend Tax rates, effective from 6 April 2026. The Basic Rate will rise to 10.75% and the Higher Rate to 35.75%. However, the Additional Rate remains frozen at 39.35%. This makes the 2025/26 tax year vital for profit extraction.
What is the most tax-efficient director salary for 2025/26?
For most directors, the optimal salary is often set at the secondary threshold for National Insurance (£9,100) or the Primary threshold (£12,570). This ensures you qualify for state pension credits without paying Employee or Employer NICs. Any income required above this amount is typically taken as dividends, which attract lower tax rates than salary.
Why take dividends instead of a higher salary?
Dividends are generally more tax-efficient because they are not subject to National Insurance Contributions (NICs). While salary is taxed at Income Tax rates plus Employee and Employer NICs, dividends are taxed at lower rates (8.75% for basic rate, 33.75% for higher rate) after a £500 tax-free allowance.
Does salary reduce Corporation Tax?
Yes. Your director's salary is a deductible business expense, meaning it reduces your company's profit and therefore its Corporation Tax bill. Dividends, however, are paid out of post-tax profits and do not reduce Corporation Tax liability. This calculator balances these two factors to find your optimal take-home pay.
How accurate is this calculator for personal tax planning?
This tool provides a strategic estimate based on standard UK tax bands and allowances for the 2025/26 and 2026/27 tax year. However, it assumes you have the standard Personal Allowance (£12,570) and no other income sources. For complex situations involving other income, pension contributions, or student loans, we recommend booking a consultation.
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Brent Morrison. Strategic accountancy partner at OutRise

ABOUT THE AUTHOR

Brent Morrison ACA CTA

Chartered Accountant and Chartered Tax Adviser

Member of the Institute of Chartered Accountants (ICAEW) and Taxation (CIOT) | Director at OutRise | He has over 12 years of experience advising high and fast growth companies across the UK. His approach combines a deep understanding of structuring data and systems, coupled with practical, real-world business experiences.

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