If you run a limited company and pay yourself, one decision quietly sets your whole tax bill for the year: how much to take as salary and how much as dividends. Get it right and you can legitimately keep thousands more of your company’s profit. Get it wrong — usually by taking too much salary, or by copying advice written for an old tax year — and you hand HMRC money you never needed to.

This is the 2024/25 guide. All the numbers below use the current rates, and every worked example links to a calculator so you can plug in your own figures.

The short answer: for most owner-managed companies in 2024/25, take a salary of £12,570 and the rest as dividends. A sole director who can’t claim the Employment Allowance sometimes debates £9,100 instead — but once you count the Corporation Tax deduction, £12,570 almost always wins. The rest of this article shows why.

Why salary and dividends are taxed on two different systems

The reason the split matters is that the two routes out of your company are taxed on completely different rules.

Salary is a business expense. It’s deductible against Corporation Tax, which is good. But it attracts three separate charges: Income Tax at your marginal rate, employee’s National Insurance (8% then 2%), and employer’s National Insurance at 13.8% on everything above £9,100. That employer NI is paid by the company on top of the salary.

Dividends are the opposite. They carry no National Insurance at all, and their tax rates are lower — 8.75%, 33.75% and 39.35% across the basic, higher and additional bands, with a £500 tax-free Dividend Allowance on top. But there’s a catch: dividends are paid out of profit that has already paid Corporation Tax. So the company is taxed first, then you’re taxed again on what’s left.

The art is combining them: a small salary to use up your tax-free Personal Allowance and lower Corporation Tax, then dividends — which dodge NI — for the balance.

Step 1: the salary — why £12,570 usually beats £9,100

There are two “magic numbers” directors argue about:

  • £9,100 — the Secondary Threshold, the point where the company starts paying 13.8% employer NI.
  • £12,570 — the Personal Allowance and the Primary Threshold, the point where you start paying Income Tax and employee NI.

Take a salary of £12,570 as a sole director and the company pays employer NI on the £3,470 above £9,100 — that’s about £479. At first glance that looks like a reason to stop at £9,100. But look at the other side of the ledger: that extra £3,470 of salary and the £479 of employer NI are both deductible against Corporation Tax. At the 19% small-profits rate that’s a saving of about £750; in the 26.5% marginal band it’s over £1,000. Either way, the Corporation Tax saved comfortably beats the £479 of employer NI.

So even for a sole director, £12,570 normally nets more. And if your company can claim the Employment Allowance — usually available once you have at least one other employee paid above the Secondary Threshold — the first £5,000 of employer NI is wiped out entirely, so the £479 disappears and £12,570 becomes an obvious win.

You can check the exact difference for your profit level with the salary vs dividend calculator — it computes both £12,570 and £9,100 and tells you which nets more.

Step 2: Corporation Tax — mind the marginal band

Whatever salary you take, the profit left over is taxed before it can become dividends. In 2024/25 Corporation Tax is:

  • 19% on profits up to £50,000
  • 25% on profits of £250,000 or more
  • 25% less marginal relief in between — which works out to an effective 26.5% on each pound in the £50,000–£250,000 band

That 26.5% marginal rate is the corporate cousin of the personal £100k trap: an intermediate band taxed above the top rate. It matters for the split because every pound of salary or employer pension contribution you route out of the company reduces the profit sitting in that expensive band. Model it with the Corporation Tax calculator.

Worked example — £100,000 profit, sole director, £12,570 salary:

  1. Salary £12,570; employer NI on (£12,570 − £9,100) = £479.
  2. Taxable profit = £100,000 − £12,570 − £479 = £86,951.
  3. Corporation Tax (marginal relief): £86,951 × 25% − (£250,000 − £86,951) × 3⁄200 ≈ £21,738 − £2,446 = £19,292.
  4. Profit available for dividends = £86,951 − £19,292 = £67,659.

Step 3: dividend tax — stacked on top of your salary

Dividends sit on top of your other income, so your salary uses up the lower bands first. With a £12,570 salary (all covered by the Personal Allowance), the whole basic-rate band is available for dividends.

The 2024/25 dividend rules:

  • First £500 of dividends: tax-free (Dividend Allowance)
  • Dividends within the basic-rate band (up to £50,270 of total income): 8.75%
  • Dividends within the higher-rate band (to £125,140): 33.75%
  • Dividends above £125,140: 39.35%

Continuing the example — £67,659 of dividends on top of a £12,570 salary:

  • £500 at 0% = £0
  • Basic-rate band: from £12,570 up to £50,270 = £37,700, less the £500 allowance already used → about £37,200 at 8.75% ≈ £3,255
  • Higher-rate band: from £50,270 up to total income of £80,229 → about £29,959 at 33.75% ≈ £10,111
  • Dividend tax ≈ £13,366

Your net take-home ≈ salary £12,570 + dividends £67,659 − dividend tax £13,366 = about £66,863, from £100,000 of company profit. Total tax across the company and you is roughly £33,137, an overall effective rate near 33%. The salary vs dividend calculator does all of this instantly and lets you flex the numbers.

Step 4: watch the £100k trap — dividends count

Here’s the trap that catches successful directors. Dividends are part of your adjusted net income, so a big dividend can push you over £100,000 and into the 60% Personal Allowance taper — or over £60,000 and into the High Income Child Benefit Charge.

Directors have a lever employees don’t: timing. You decide when to declare dividends, so you can spread them across tax years to stay under £100,000, or make a company pension contribution (fully deductible, and it reduces your adjusted net income to zero effect because it never becomes personal income). Check where you’ll land with the adjusted net income calculator before you declare a large dividend in March.

Step 5: don’t forget the pension — the director’s best-kept move

An employer pension contribution paid by the company is deductible against Corporation Tax, carries no NI, and isn’t personal income — so it sidesteps dividend tax entirely. For a higher-rate director, routing profit into a pension rather than taking it as a dividend can be dramatically more efficient, especially if dividends would otherwise land in the 33.75% band. The trade-off is access: pension money is locked until age 55 (57 from 2028). It’s often the single biggest optimisation available to a company owner, and worth modelling alongside the salary/dividend split.

The 2024/25 checklist

  1. Salary £12,570 in almost all cases — it uses your Personal Allowance, banks a State Pension qualifying year, and the Corporation Tax deduction beats the small employer NI. Drop to £9,100 only if a specific reason applies (and check it in the calculator).
  2. Claim the Employment Allowance if eligible — it removes the employer NI on a £12,570 salary.
  3. Dividends for the balance — no NI, lower rates, but remember they’re paid from post-Corporation-Tax profit.
  4. Stay aware of thresholds — £50,270 (higher-rate dividends jump to 33.75%), £60,000 (Child Benefit charge), £100,000 (the 60% trap).
  5. Consider an employer pension contribution before taking dividends into the higher-rate band.
  6. Confirm with your accountant — this guide frames the decision; your accountant confirms it against your full circumstances.

Try it on your own numbers

This article uses 2024/25 UK rates for a single company with an England, Wales or Northern Ireland director and is general information, not personal tax advice. Scottish taxpayers use different Income Tax bands on salary (dividend rates are UK-wide). Always confirm your own position with a qualified accountant.