Why does the company lose here when everyone said it saves tax?

Two rises did it: dividend rates went up 2 points in 2026/27 and employer NI rose in 2025. With everything paid out each year, sole trade now wins at most profit levels. The company case rests on leaving profit inside at 19-25% instead of drawing it.

Why a 5,000 salary and not 12,570?

A sole director cannot claim the Employment Allowance, so salary between 5,000 and 12,570 carries 15% employer NI. 5,000 avoids it entirely; 12,570 uses the full personal allowance but costs about 1,135 in employer NI, partly recovered through corporation tax relief. Try both in the field.

Does IR35 change this?

If a contract is inside IR35, the client taxes you like an employee and the dividend planning above barely applies to that income. The comparison here is for genuinely independent work.

United Kingdom

Salary vs dividends calculator

The classic question with this year's numbers: run a profit as a sole trader or through a company on a small salary plus dividends. The 2026/27 dividend rate rise moved this answer for a lot of people; check yours instead of trusting a 2024 blog post.

Your setup

Annual profit

Before any salary or tax, both routes.

Director salary

5,000 keeps employer NI at zero for a sole director.

The verdict

Sole trade keeps more, by£2,699

Sole trader: take-home: £57,711
Company: take-home: £55,012
Employer NI on the salary: £0
Corporation tax: £16,125
Dividends paid: £58,875
Dividend tax: £8,863

Estimate

workingfigures.com/uk/dividend-vs-salary

Formula

company take-home = salary − income tax + dividends − dividend tax, where dividends = profit − salary − employer NI − corporation tax. CT 19% to 50,000, 25% from 250,000, marginal relief between. Dividend rates 10.75 / 35.75 / 39.35 over the 500 allowance.

Assumptions

Single director, no other income, every post-tax pound distributed the same year. Retaining profit inside the company defers the dividend layer and is the honest reason companies win at higher profits; this tool deliberately shows the everything-out case.

Tax year 2026/27 · rates verified 2026-08-21

FAQ

Why does the company lose here when everyone said it saves tax?: Two rises did it: dividend rates went up 2 points in 2026/27 and employer NI rose in 2025. With everything paid out each year, sole trade now wins at most profit levels. The company case rests on leaving profit inside at 19-25% instead of drawing it.
Why a 5,000 salary and not 12,570?: A sole director cannot claim the Employment Allowance, so salary between 5,000 and 12,570 carries 15% employer NI. 5,000 avoids it entirely; 12,570 uses the full personal allowance but costs about 1,135 in employer NI, partly recovered through corporation tax relief. Try both in the field.
Does IR35 change this?: If a contract is inside IR35, the client taxes you like an employee and the dividend planning above barely applies to that income. The comparison here is for genuinely independent work.