Is it more tax efficient to operate through a limited company vs PAYE in 2026/27?

In most cases yes — a limited company director paying themselves a salary of £12,570 and taking the rest as dividends will pay less total tax than a PAYE employee on the same gross income. The saving depends on income level, expenses, pension contributions, and whether a spouse can receive dividends. Use this calculator to see your specific saving.

What are the dividend tax rates for 2026/27?

From 6 April 2026, UK dividend tax rates increased by 2%. The rates for 2026/27 are: 10.75% for basic rate taxpayers, 35.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers. The dividend allowance remains at £500.

What is the corporation tax rate for 2026/27?

For 2026/27, corporation tax is 19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief applying between £50,001 and £250,000. The effective marginal rate in the relief band is approximately 26.5%.

What is the optimal director salary for 2026/27?

For most sole-director companies in 2026/27, the optimal salary is £12,570 — equal to the personal allowance. This avoids income tax on the salary, and as the only director you typically cannot claim Employment Allowance, so employer NI on the salary above £9,100 is a real cost. Some directors prefer £9,100 to eliminate employer NI entirely.

Ltd Company vs PAYE Tax Calculator 2026/27

Your Numbers

Annual Revenue / Gross Salary (£)

Business Expenses — Ltd only, excl. salary (£)

Pension Contributions (£/year)

Director Salary Strategy

Salary Approach

Options

50/50 Spouse Dividend Split If your spouse or civil partner is a shareholder in your Ltd company, you can split dividends 50/50. This uses their tax-free allowance and basic-rate band, often saving £1,000–£3,000+ in tax per year. HMRC requires the split to be genuine — your spouse must hold actual shares.

Employment Allowance (2nd employee) Employment Allowance reduces your Ltd company's Employer NI bill by up to £10,500 per year (2026/27). To qualify, you must have at least 2 employees on payroll — a sole director paying themselves alone does not qualify. Toggle on if you employ a second person (e.g. a spouse or staff member).

2026/27 Rates Used:
Income Tax: 20% / 40% / 45%
Employee NI: 8% (£12,570–£50,270), 2% above
Employer NI: 13.8% above £9,100
Corp Tax: 19% (≤£50k) → 25% (≥£250k) + marginal relief
Dividends: £500 allowance · 10.75% / 35.75% / 39.35%

// Ltd Company

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// PAYE Employment

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// Take-home vs Tax Burden

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Ltd — Total Tax —

PAYE — Take-home —

PAYE — Tax + NI —

Item Ltd (£) PAYE (£)

⚠ Estimates only. Based on HMRC 2026/27 confirmed rates for England, Wales & Northern Ireland. Assumes optimal salary + dividend extraction for Ltd. PAYE input treated as gross salary — employer NI is a separate business cost not deducted from employee take-home. Corporation tax applies marginal relief between £50k–£250k profits. Personal allowance tapers above £100k income. Not financial advice — consult an accountant for your specific situation.

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How does Ltd company tax compare to PAYE in 2026/27?

Operating through a limited company remains more tax efficient than PAYE employment for most UK contractors and consultants in 2026/27, though the gap has narrowed following the 2% increase in dividend tax rates from 6 April 2026. A director taking a salary of £12,570 and drawing the remainder as dividends will typically pay significantly less total tax than a PAYE employee on the same gross income — primarily because dividends attract no National Insurance and benefit from lower rates than income tax.

The saving depends on your income level, business expenses, pension contributions, and whether your spouse can receive dividends from shares in your company. Use the calculator above to model your specific situation.

Key 2026/27 tax rates used in this calculator

Personal allowance: £12,570 (frozen until at least April 2031, tapering above £100,000)
Income tax: 20% basic rate (up to £50,270), 40% higher rate (£50,271–£125,140), 45% additional rate
Employee NI: 8% on earnings between £12,570–£50,270; 2% above £50,270
Employer NI: 13.8% on earnings above £9,100 per year
Corporation tax: 19% on profits up to £50,000; 25% on profits over £250,000; marginal relief between
Dividend allowance: £500 (unchanged)
Dividend tax rates: 10.75% basic, 35.75% higher, 39.35% additional (increased 2% from April 2026)

What is the most tax-efficient director salary for 2026/27?

For most sole-director limited companies in 2026/27, the optimal salary is £12,570 — equal to the personal allowance. This avoids any income tax on the salary. Because the director is typically the only employee liable for secondary Class 1 NI, Employment Allowance is not available, so employer NI on earnings above £9,100 is a real cost. Some directors prefer to take exactly £9,100 to eliminate employer NI entirely, accepting a slightly smaller personal allowance usage. The right choice depends on your profit level — the calculator models both approaches.

Ltd Company vs PAYETax Calculator

Want a personalised tax plan?

How does Ltd company tax compare to PAYE in 2026/27?

Key 2026/27 tax rates used in this calculator

What is the most tax-efficient director salary for 2026/27?

Ltd Company vs PAYE
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