£200,000 Company Profit — Optimal Director Pay Strategy
All salary vs £12,570 salary + dividends · 2025-26 tax year
Strategy A — All Salary
| Company profit | £200,000 |
| Employer NI (15% >£5k) | −£25,435 |
| Salary received | £174,565 |
| Income Tax | −£65,386 |
| Employee NI | −£5,502 |
| Net take-home | £103,677 |
Strategy B — Salary + Dividends
| Company profit | £200,000 |
| Salary (= PA) | −£12,570 |
| Employer NI (deductible) | −£1,136 |
| Taxable profit for CT | £186,294 |
| Corporation Tax | −£46,574 |
| Dividend Tax | −£39,054 |
| Net take-home | £113,236 |
How the strategy works at £200,000 profit
Pay £12,570 salary. This exactly equals the personal allowance — so zero income tax. The NI primary threshold is also £12,570, so zero employee NI. The company pays £1,136 employer NI (15% on salary above £5,000), but this is a deductible business expense.
After deducting salary (£12,570) and employer NI (£1,136), taxable profit is £186,294. Corporation tax of £46,574 is paid, leaving £139,720 available to distribute as dividends.
£139,720 in dividends is declared. The first £500 is covered by the dividend allowance (tax-free). The salary used the personal allowance, leaving the full basic rate band (£37,700) for dividends at 8.75%. Any dividends above £50,270 total income are taxed at 33.75%. Total dividend tax: £39,054.
Note: These calculations are estimates for illustration purposes. They assume all company profit is extracted as salary or dividends in the same tax year, with no other income sources. Corporation tax uses the small profits rate (19%) for taxable profits up to £50,000 and the main rate (25%) above that — marginal relief between £50k–£250k is not modelled. Pension contributions, allowable expenses, and retained profits are not included. Always consult a qualified accountant before deciding your director pay strategy.
Director pay strategy at £200,000 company profit in 2025-26
A company director with £200,000 in company profit faces a clear choice: draw it all as salary, or use the optimal salary + dividends structure.
Strategy A — All salary: the company pays employer NI of £25,435 (15% on salary above £5,000), leaving a gross salary of £174,565. Personal income tax of £65,386 and employee NI of £5,502 reduce this to a net take-home of £103,677 (£8,640/month). Effective rate: 48.2%.
Strategy B — £12,570 salary + dividends: the director takes £12,570 salary (zero income tax, zero employee NI). Employer NI of £1,136 is a deductible cost, making taxable profit £186,294 for corporation tax purposes. After CT of £46,574, the company distributes £139,720 in dividends. Dividend tax of £39,054 leaves a net take-home of £113,236 (£9,436/month).
The annual saving is £9,559 (£797/month). The key advantage is that dividends are taxed at 8.75% (basic rate) and 33.75% (higher rate), compared to income tax at 20% and 40%, and without any employee NI at 8%.
Frequently asked questions
Why do most directors take a £12,570 salary?
A salary of £12,570 equals the personal allowance in 2025-26, so zero income tax is due on it. The primary National Insurance threshold also sits at £12,570, meaning zero employee NI too. Any salary above £12,570 would attract income tax at 20% and employee NI at 8% — so there is no advantage to going higher unless the director needs a higher NI-contributing salary for state pension or mortgage purposes.
Does the salary + dividends strategy work for all profit levels?
For most directors it works well, but the advantage is smaller at lower profits. In 2025-26, the employer NI secondary threshold dropped to £5,000 (from £9,100), so even a £12,570 salary attracts roughly £1,136 in employer NI. At very low profit levels (below £15,000), the employer NI cost can reduce the benefit of the salary + dividends approach. At £200,000 profit, the salary + dividends strategy saves approximately £9,559 per year.
What changed in 2025-26 for director pay?
The employer NI secondary threshold fell from £9,100 to £5,000 and the rate increased from 13.8% to 15%. This means a director taking a £12,570 salary now pays roughly £1,136 in employer NI — a cost that did not apply in previous years when the secondary threshold was above the personal allowance. Despite this change, the salary + dividends strategy remains more tax-efficient than all-salary at virtually all profit levels above £30,000.
What corporation tax does my company pay on £200,000 profit?
Under the salary + dividends strategy, salary and employer NI are deductible, so the taxable profit for CT purposes is approximately £186,294. Corporation tax on this is £46,574 (using 19% for profits up to £50,000, 25% above that). The remaining £139,720 is available as dividends.
How is dividend tax calculated for a director?
Once the director has taken a £12,570 salary (= personal allowance, so no income tax used on salary), the full basic rate band (£37,700) is available for dividends. The first £500 of dividends is tax-free (dividend allowance). Above £500, dividends in the basic rate band are taxed at 8.75%, in the higher rate band at 33.75%, and above £125,140 at 39.35%. On £200,000 profit, total dividend tax under Strategy B is £39,054.
Should I retain profit in my company instead of taking dividends?
Retaining profit in the company defers personal tax on dividends. If you expect to be a lower-rate taxpayer in a future year — for example, if you plan to work less or take time off — drawing dividends then rather than now can reduce your overall tax bill. However, retained profit is subject to corporation tax now. A qualified accountant can model the most tax-efficient timing for your specific situation.