Route out
Select at least one route out to plot.
Where the profit goes
Assumptions & sources
- Corporation tax has three rates, not two. 19% on profits up to £50,000, 25% above £250,000, and in between the 25% is reduced by marginal relief. Because each extra pound of profit also withdraws some of that relief, the rate on the next pound between the two limits is 26.5% — higher than the main rate it is supposed to be softening. Both limits are divided by one plus the number of associated companies, so a second company you control halves them.
- Corporation tax runs on financial years, not tax years. A financial year starts on 1 April; a tax year starts on 6 April. The rates here have been unchanged since 1 April 2023, so the five-day mismatch makes no difference to either year on this page — but it would if a rate ever changed mid-year, and an accounting period straddling a change has to be apportioned.
- Salary is deducted before corporation tax; a dividend is not. That is the whole reason the routes differ. Salary and the employer NI on it both reduce the taxable profit, so they cost 19p or 26.5p or 25p less per pound than they look. A dividend is paid out of profit that has already borne corporation tax, and is then taxed again in the owner’s hands.
- The employment allowance usually is not available. A company whose only employee liable to secondary Class 1 NIC is a single director cannot claim it. That is the common owner-managed case, so it is the default here. Set it to available only if there is genuinely a second employee, and note how far it moves the all-salary line when you do.
- The worst band is worse than any headline rate. On the salary-to-allowance route the rate on the next pound of company profit peaks at —, and it stays there —. That stretch is the personal allowance taper. Each extra pound of dividend withdraws 50p of allowance, which does two things at once: 50p of the salary stops being covered and is taxed, and 50p of dividend is pushed out of the basic band into the higher one. Stack corporation tax on top and you get a rate no published table contains. It is also why paying less salary can win in that stretch — try the salary-to-NI-threshold route there.
- Retaining profit and paying a pension are deferrals, not savings. With “money left behind” set to not taxed yet, those two routes look far cheaper than they are, because the tax on getting the money out later is simply not counted. Switch it to charged on the way out and the page adds an assumed exit charge: retained profit at the business asset disposal relief rate on a solvent liquidation, and the pension at 20% on the three-quarters that is not the tax-free lump sum. Both are assumptions about a future that has not happened, and neither is a rate in statute.
- What this does not model. One owner-director with no other income, no student loan, and a company whose profit is all trading profit taxed in one financial year. Not here: the £60,000 pension annual allowance taper for high earners and unused carry-forward; whether the company has distributable reserves to pay the dividend at all; whether the salary is commercially justifiable; close company loans to participators and the section 455 charge; the salary sacrifice route; benefits in kind; capital allowances; R&D relief; patent box; group relief; losses brought forward; VAT; and anything at all about a second shareholder.
- Rates and bands come from
/assets/uk-tax.js, the shared module behind the other tax tools on this site, so a Budget is one edit in one file. Income tax, dividend tax and National Insurance are the same figures the take-home pay and savings, dividends and capital gains tools use.