Is a £12,570 salary plus dividends always the best split?

"£12,570 salary, rest in dividends" gets quoted like it's gospel.

It isn't.

It's the right answer at some income levels and the wrong one at others and most business owners never actually check which one applies to them.

Where does the £12,570 salary figure come from?

For 2026 to 2027, £12,570 is the standard Personal Allowance, the amount of income you do not pay Income Tax on. HMRC's rates and thresholds for employers show the same figure as the primary threshold, which is the point where employee National Insurance starts.

The employer side is different. The same guidance puts the secondary threshold at £5,000 a year, with employer contributions at 15% above it, so a £12,570 salary still carries National Insurance for the company. Employment Allowance can reduce an employer's bill, but HMRC's eligibility rules say that if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance.

How are salary and dividends taxed differently?

Those rows pull in opposite directions. Salary reduces the company's taxable profit but carries National Insurance on both sides. Dividends carry no National Insurance, but HMRC's guidance is that you cannot count them as business costs when you work out Corporation Tax, so they are paid from profit the company is taxed on.

Why does the answer change with the amount you take out?

Every one of those rates moves as the figures get bigger. Corporation Tax is 19% where profits are £50,000 or less and 25% where they are more than £250,000, with Marginal Relief in between. Dividend tax goes from 10.75% in the basic rate band to 35.75% in the higher rate band and 39.35% in the additional rate band. Employee National Insurance is 8% up to £50,270 a year and 2% above it.

The Personal Allowance moves too. HMRC's guidance says it goes down by £1 for every £2 of adjusted net income above £100,000, and is zero at £125,140 or above.

What does the comparison look like at £50,000 and £200,000?

Here's the proof, same £X drawn from the company either way:

Need £50,000 out? The traditional split (£12,570 salary + dividends) beats pure salary by over £5,000 a year. At this level, dividends are still doing their job.

Need £200,000 out? The traditional split now loses.

Taking almost everything as salary, with just the £500 dividend allowance mopped up on top, comes out ahead instead. The maths that worked at £50k actively works against you here.

Same "rule," opposite answer, depending purely on how much you're actually taking out.

In between, and again once earnings are more modest, the answer changes again.

A comparison like this depends on the basis it is run on: whether the figure is what you need in your hand after tax, what else you earn, and whether the company can claim Employment Allowance. That is the reason to run it on your own numbers.

Is there a formula that works every year?

There's no fixed formula that applies to every business owner every year.

There's a number (how much you actually need to draw) and then a calculation that has to be run against it.

The rates themselves do not stand still either. HMRC's Company Taxation Manual records the dividend upper rate as 32.5% up to 2021 to 2022, 33.75% from 6 April 2022 and 35.75% from 6 April 2026, so a split that was worked out under one set of rates needs running again under the next.

Guess the split and you either overpay tax or leave money exposed.

Neither is a good place to find out you were wrong.

For the detail of setting the two amounts, see how much a founder should pay themselves. If your income is near £100,000, the 60% tax trap covers what the loss of the Personal Allowance does to the sums.

Rates and thresholds change, and the right split depends on your own income and your company's profit, so this is general information rather than advice on your position. If you want the calculation run on your own figures, talk to us.