Salary vs Dividend Extraction
Taking profit out of a company: which route leaves you more.
Replaces: The annual conversation with your accountant
How to use it
Split the profit between salary and dividend, apply every tax and charge each route attracts, and compare what actually reaches you. The rates are yours to enter, because they differ by jurisdiction and by income band.
Where the number comes from
- Salary is deductible for the company, so no corporate tax applies to it — but employer social charges are levied on top of the gross.
- Because those charges sit on top, a pot of profit supports a gross salary of pot ÷ (1 + employer rate).
- That gross salary is then reduced by personal income tax and employee social charges.
- The dividend route pays corporate tax on the profit first, then personal dividend tax on what remains — two layers on the same money.
- The table runs the same calculation across a range of splits so the shape of the trade-off is visible rather than inferred.
What goes wrong
The part most calculators leave out.
- Every rate here is entered as a flat percentage, and real tax systems are banded. Someone straddling a threshold faces a marginal rate quite different from their average one, and the optimum split moves accordingly.
- Allowances, personal thresholds, tax-free dividend bands and small-profits rates are not modelled at all. In most jurisdictions those are exactly what create the optimum mix, so treat this as a shape rather than an answer.
- Many jurisdictions require a working director to draw a reasonable salary, and paying only dividends can be challenged, recharacterised, or attract penalties.
- Salary builds entitlements dividends do not: state pension, social security, parental and sickness benefits, and demonstrable income for lenders. Optimising this year’s take-home can cost more than it saves.
- Dividends require distributable reserves. A company without accumulated profit cannot legally pay one regardless of what this calculator suggests.
- This is arithmetic on rates you supplied, not tax advice. Extraction planning is jurisdiction-specific, changes yearly, and is one of the areas where generic guidance is most expensive to follow.
Why the two routes are closer than they look
With 150,000 of profit, the dividend route pays 25% corporate tax first, leaving 112,500, then 33.75% personally — about 74,500 reaching you, an effective rate over 50%. The salary route avoids corporate tax entirely but attracts 13.8% employer charges on top of the gross, so the same 150,000 pot supports roughly 131,800 of gross salary, taxed at 40% plus 2% employee charges: about 76,400. Barely two thousand between them. The instinct that dividends are obviously cheaper comes from jurisdictions where the dividend rate is far below the income tax rate — change one input and the answer flips, which is precisely why this is a question for an accountant who knows your bands.
Questions
- Is it always better to take dividends?
- No. Dividends carry two layers of tax — corporate then personal — while salary carries one plus social charges. Which wins depends entirely on the relationship between those rates where you are, and it changes when rates change.
- Why does the employer charge reduce the gross salary?
- Because it is levied on top of what you pay rather than deducted from it. A fixed pot of profit must cover both the salary and the charge, so the salary it supports is the pot divided by one plus the charge rate.
- Should I take no salary at all?
- Rarely advisable. Many jurisdictions expect a working director to draw a reasonable salary, and a salary at least to the level that secures social security and pension entitlement is usually worth taking regardless of the arithmetic.
- Does anything I type get sent anywhere?
- No. The whole calculation runs in your browser. Nothing is transmitted, stored, or logged, and there is no account to create.
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