Dividend vs Salary Calculator

For the 2026/27 tax year, dividends are taxed at 10.75% for basic rate, 35.75% for higher rate, and 39.35% for additional rate taxpayers. These rates apply to income exceeding the £500 dividend allowance. Any dividends above this threshold are added to your total income to determine your tax band.

From 6 April 2026, the VAT registration threshold remains at £90,000, meaning businesses must register if their taxable turnover exceeds this limit. Once registered, you must charge VAT on all taxable supplies and submit returns via Making Tax Digital. It is crucial to monitor turnover closely to avoid penalties for late registration.

Making Tax Digital for Income Tax Self Assessment (MTD ITSA) becomes mandatory for self-employed individuals and landlords with income over £50,000 from 6 April 2026. This requires keeping digital records and submitting quarterly updates to HMRC. The threshold for mandatory participation is set to rise to £30,000 in April 2027.

In 2026/27, employers pay 15% National Insurance on salaries above the £5,000 secondary threshold. There is no upper limit for employer NICs, so all earnings above £5,000 are subject to this rate. This makes a low salary combined with dividends a common strategy to minimise total tax and NIC liabilities.

Section 455 tax is charged at 35.75% on any director's loan outstanding 9 months and one day after the end of the accounting period. This rate matches the higher dividend tax rate for 2026/27 and is refundable once the loan is repaid. It is essential to clear loans before the deadline to avoid this significant upfront cost.