From 6 April 2026 the dividend tax rates founders actually pay went up. Finance Act 2026 set the ordinary rate at 10.75% and the upper rate at 35.75%, two percentage points above the 2025/26 figures, with the additional rate held at 39.35%1. The dividend allowance stays at £5002. Employer NIC has been 15% above a £5,000 secondary threshold since April 20254. Every one of those numbers feeds the oldest question in owner-managed company tax: how much salary should a founder take, and how much should come as dividends?
The short answer for 2026/27: the low-salary-plus-dividends structure still wins for most founders, and £12,570 is still the right salary in almost every configuration. But the margins have narrowed enough that the answer now turns on two variables it was once safe to ignore: your company's corporation tax rate and which personal band your dividends land in. This post works through the numbers. If you want to test your own figures, our founder dividend vs salary calculator runs the full 2026/27 computation both ways.
The 2026/27 numbers that drive the decision
| Item | 2026/27 figure |
|---|---|
| Dividend rates (basic / higher / additional) | 10.75% / 35.75% / 39.35%1 |
| Dividend allowance | £5002 |
| Personal allowance / basic rate band | £12,570 / £37,700 (higher rate from £50,270)3 |
| Employer NIC | 15% above £5,000 secondary threshold4 |
| Employee NIC | 8% above £12,570, 2% above £50,2704 |
| Lower Earnings Limit (state pension qualifying year) | £6,708 for the year4 |
| Corporation tax | 19% up to £50,000 profits, 25% from £250,000, marginal relief between6 |
Two structural points before the arithmetic. Salary and the employer NIC on it are deductible against corporation tax; dividends are paid out of profits that have already suffered corporation tax. And dividends carry no NIC at all, employer or employee. The whole salary-versus-dividend question is those two effects fighting each other, and the 2026 rate rises shifted the balance.
The optimal salary level: £5,000, £6,708 or £12,570?
There are three candidate salary levels for a founder-director in 2026/27, and only two of them are serious.
£5,000 (the employer NIC secondary threshold). No NIC of any kind is due. But £5,000 is below the £6,708 Lower Earnings Limit, so the year does not count towards the 35 qualifying years the full new state pension requires7. Unless you already have a full contribution record or credits from elsewhere, this is a false economy: you are giving up a qualifying year to save a few hundred pounds.
£6,708 (the Lower Earnings Limit). This is the floor that secures the qualifying year. Employee NIC is nil (you are below the £12,570 primary threshold) and employer NIC is 15% of the £1,708 above the secondary threshold, which is £256.20 for the year.
£12,570 (the personal allowance and primary threshold). Still no income tax and no employee NIC. The company pays employer NIC of 15% on £7,570, which is £1,135.50, but deducts the full £13,705.50 of salary plus NIC against corporation tax.
Here is why £12,570 beats £6,708 for most founders. The extra £5,862 of salary costs the company £879.30 of employer NIC, but the corporation tax deduction on £6,741.30 is worth £1,280.85 even at the 19% small profits rate. Run the same £6,741.30 of pre-tax profit through the dividend route instead: 19% corporation tax leaves £5,460.45, and 10.75% dividend tax on that leaves £4,873. The salary route delivers the full £5,862 into the founder's hands, £989 more. At 25% corporation tax the gap is wider still.
The Employment Allowance, worth up to £10,500 against employer NIC in 2026/27, sharpens this further5. A company whose only employee paid above the secondary threshold is a sole director cannot claim it, but a startup with two or more founders on payroll, or any other employee above the threshold, generally can. Where it applies, the employer NIC on a £12,570 founder salary disappears entirely and the case for the full personal-allowance salary becomes one-sided.
Worked example: £60,000 of profit, mix versus all-salary
Take a solo SaaS founder whose company has £60,000 of profit before any founder pay, with corporation tax at 19% and no Employment Allowance (sole director). Compare extracting everything as salary against the standard £12,570-plus-dividends mix.
| Route A: £12,570 salary + dividends | Route B: all salary | |
|---|---|---|
| Salary | £12,570 | £52,826 |
| Employer NIC (15% above £5,000) | £1,136 | £7,174 |
| Corporation tax (19%) | £8,796 | £0 |
| Dividend paid | £37,498 | £0 |
| Income tax | £0 | £8,562 |
| Dividend tax (£500 at 0%, £36,998 at 10.75%) | £3,977 | £0 |
| Employee NIC | £0 | £3,067 |
| Founder keeps | £46,091 | £41,197 |
| Total tax and NIC | £13,909 (23.2%) | £18,803 (31.3%) |
In Route A the salary sits entirely inside the personal allowance, and the £37,498 dividend fits inside the £37,700 basic rate band, so every taxable pound of dividend is taxed at 10.75%13. In Route B the gross salary is set so that salary plus employer NIC exhausts the same £60,000 (£52,826 plus £7,174), and the founder pays 40% income tax on the slice above £50,270 plus employee NIC all the way up34. The mix saves £4,894 a year. Even after the two-point dividend rate rise, this is not close at basic-rate levels of extraction.
Where the 2026 rate rise actually bites: the higher-rate margin
The interesting change is at the margin, for founders drawing beyond £50,270. Here is what a founder keeps from an extra £1,000 of pre-tax company profit, extracted each way, at 2026/27 rates.
| Founder's marginal band | Dividend, company at 19% CT | Dividend, company at 25% CT | Extra salary (any CT rate) |
|---|---|---|---|
| Basic rate | £723 | £669 | £626 |
| Higher rate | £520 | £482 | £504 |
| Additional rate | £491 | £455 | £461 |
The salary column is flat across corporation tax rates because salary is fully deductible: £1,000 of pre-tax profit funds £869.57 of gross salary plus £130.43 of employer NIC, and the founder then pays income tax and 2% employee NIC on the gross. The dividend columns shrink as the corporation tax rate rises because dividends are paid from post-tax profit: £1,000 becomes £810 after 19% corporation tax or £750 after 25%, before dividend tax at 35.75% or 39.35% takes its share16.
Read the higher-rate row carefully. At 19% corporation tax, dividends still win in every band. At 25%, salary is ahead of dividends for both higher-rate (£504 versus £482) and additional-rate (£461 versus £455) income. In the marginal relief band between £50,000 and £250,000 of profits, where the effective marginal corporation tax rate is 26.5%, salary's edge is wider again. This position is not new: at 25% corporation tax salary already shaded dividends in 2025/26 (roughly £504 versus £497 at higher rate, and the additional-rate figures are unchanged because the 39.35% rate was held). What the two-point rise did was widen the gap, from a few pounds per £1,000 of profit to over twenty at higher rate. A founder of a profitable company in the 25% bracket who wants more than roughly £50,270 of income should now model the top slice as salary or, better, look at the third route below. One wrinkle to keep in view: between £100,000 and £125,140 the personal allowance tapers away and marginal rates on any income are brutal, so extraction that crosses that zone deserves its own plan.
The constraints the arithmetic ignores
Dividends require distributable reserves. A dividend is only lawful if the company has accumulated realised profits to cover it. A venture-funded startup running at a planned loss usually has none, regardless of the cash balance, so its founders cannot use the dividend route at all. For those companies the questions are salary level, employer pension contributions, and equity, and the sections above on the £6,708 floor and the £12,570 optimum are the operative ones.
Paperwork matters. Dividends need a board minute and a dividend voucher, must be paid in proportion to shareholdings (or via properly structured alphabet shares), and cannot be reclassified after the event. HMRC treats undocumented drawings as director's loan account debits, not dividends.
Directors have an annual earnings period for NIC. Director NIC is assessed on the whole tax year, so an irregular salary pattern does not create or avoid NIC that a level monthly salary would not.
Employer pension contributions are the quiet third route. A company contribution to the founder's pension is normally deductible for corporation tax, carries no NIC either side and no income tax now. For a higher-rate founder of a 25%-rate company, it beats both columns in the marginal table, at the price of locking the money up to pension access age.
Salary versus dividends is a different question from what to pay executive hires. Market-rate pay for a CFO or senior team, and when a startup should buy fractional finance leadership, is benchmarked separately in our guide to startup CFO pay and fractional CFO cost. And for founders whose real upside is equity rather than extraction, an EMI scheme is usually the tax-efficient instrument for the wider team.
What founders should do for 2026/27
If your company pays 19% corporation tax and you draw within the basic rate band, nothing structural changes: £12,570 salary, dividends for the rest, and the two-point rate rise simply costs you a little over £700 a year on a full basic-band dividend. If your company pays 25%, or sits in the marginal relief band, and you draw into the higher or additional rate, the old reflex of "dividends for everything above salary" is no longer automatically right, and the top slice deserves a proper comparison, including the pension route. Run your own numbers through the founder dividend vs salary calculator, and if you want the structure set up and documented properly, our core compliance service and funded startups hub are the places to start.
Sources
- Finance Act 2026, section 4: dividend ordinary, upper and additional rates for 2026/27.
- GOV.UK: Tax on dividends, dividend allowance and rate bands.
- GOV.UK: Income Tax rates and personal allowances.
- GOV.UK: National Insurance rates and categories, employer and employee rates and thresholds.
- GOV.UK: Employment Allowance, eligibility including the single-director exclusion.
- GOV.UK: Corporation Tax rates, small profits rate, main rate and marginal relief.
- GOV.UK: The new State Pension, qualifying years and National Insurance records.