This appendix supports our 2025/26 director tax planning guides:
This technical appendix supports the summary table by showing the full line-by-line computations for company tax, NIC and personal tax.
Controlled inputs used across all strategies:
- Company profit before any director remuneration: £200,000
- Director-owner target extraction value: £100,000 (cash and/or pension)
- One director-owner and one part-time non-director employee (so EA eligibility exists in the “With EA” case)
- No other personal income/gains/reliefs affecting allowances or bands
- 2025/26 UK rates and thresholds
- No associated companies for corporation tax marginal relief purposes
- Pension contributions assumed deductible for corporation tax and within the director’s available annual allowance
Key 2025/26 inputs assumed:
- Personal allowance (PA): £12,570
- Basic rate band (BRB): £37,700
- Dividend allowance: £500
- Dividend tax rates: 8.75% / 33.75% / 39.35%
- Employee NIC: 8% main rate (PT→UEL), 2% above UEL
- Employer NIC: 15% above Secondary Threshold
- Secondary Threshold (ST): £5,000
- Primary Threshold (PT): £12,570
- Upper Earnings Limit (UEL): £50,270
Corporation tax method (marginal relief):
For taxable profits P between £50,000 and £250,000:
- CT at main rate = P × 25%
- Marginal relief = (250,000 − P) × 3/200
- Corporation tax = (P × 25%) − ((250,000 − P) × 3/200)
Scenario A – WITH Employment Allowance
Strategy: £75,000 salary + £25,000 employer pension
- Profit before remuneration: £200,000.00
- Salary: £75,000.00
- Employer NIC (gross):
- NICable pay = £75,000 − £5,000 = £70,000.00
- ER NIC @15% = £70,000 × 15% = £10,500.00
- Employment Allowance offsets ER NIC payable: £10,500.00
- ER NIC payable after EA: £0.00
- Employer pension: £25,000.00
- Taxable profit (P):
- £200,000 − £75,000 − £0 − £25,000 = £100,000.00
- Corporation tax:
- CT = (100,000 × 25%) − ((250,000 − 100,000) × 3/200)
- = 25,000 − (150,000 × 0.015)
- = 25,000 − 2,250
- = £22,750.00
- Net company retained (no dividends):
- £100,000 − £22,750 = £77,250.00
Director personal tax (salary)
- Income tax on salary:
- Taxable salary = £75,000 − £12,570 = £62,430.00
- £37,700 @20% = £7,540.00
- £24,730 @40% = £9,892.00
- Total income tax = £17,432.00
- Employee NIC:
- PT→UEL slice: £37,700 × 8% = £3,016.00
- Above UEL: (£75,000 − £50,270) = £24,730 × 2% = £494.60
- Total employee NIC = £3,510.60
- Net cash to director now:
- £75,000 − £17,432 − £3,510.60 = £54,057.40
- Pension (deferred value): £25,000.00
Totals for reconciliation
- Total paid to HMRC = CT £22,750 + IT £17,432 + EE NIC £3,510.60 + ER NIC £0 + dividend tax £0
= £43,692.60 - Net retention (director + company) = company retained £77,250 + net cash £54,057.40 + pension £25,000
= £156,307.40
Strategy: £30,000 salary + £70,000 dividend
Company-level computation
- Profit before remuneration: £200,000.00
- Salary: £30,000.00
- Employer NIC (gross):
- NICable pay = £30,000 − £5,000 = £25,000.00
- ER NIC @15% = £25,000 × 15% = £3,750.00
- Employment Allowance offsets ER NIC payable: £3,750.00
- ER NIC payable after EA: £0.00
- Taxable profit (P):
- £200,000 − £30,000 − £0 = £170,000.00
- Corporation tax:
- CT = (170,000 × 25%) − ((250,000 − 170,000) × 3/200)
- = 42,500 − (80,000 × 0.015)
- = 42,500 − 1,200
- = £41,300.00
- Post-CT profit: £170,000 − £41,300 = £128,700.00
- Dividend paid: £70,000.00
- Net company retained:
- £128,700 − £70,000 = £58,700.00
Director personal tax (salary + dividends)
(a) Salary income tax and NIC
- Income tax on salary:
- Taxable salary = £30,000 − £12,570 = £17,430.00
- Tax @20% = £17,430 × 20% = £3,486.00
- Employee NIC:
- NICable earnings = £30,000 − £12,570 = £17,430.00
- EE NIC @8% = £17,430 × 8% = £1,394.40
(b) Dividend tax – FULL WORKING
Dividends received: £70,000.00
Step 1: Remaining basic rate band after salary
- BRB = £37,700
- Salary taxable uses BRB = £17,430
- Remaining BRB = £37,700 − £17,430 = £20,270.00
Step 2: Apply dividend allowance (0% but uses band)
- Dividend allowance = £500.00
- Remaining BRB for taxed dividends = £20,270 − £500 = £19,770.00
Step 3: Apply dividend rates by band
- Basic rate dividend slice = £19,770.00 @ 8.75%
- Tax = 19,770 × 0.0875 = £1,729.88
- Higher rate dividend slice = remaining dividends:
- £70,000 − £500 − £19,770 = £49,730.00 @ 33.75%
- Tax = 49,730 × 0.3375 = £16,788.38
Total dividend tax = £1,729.88 + £16,788.38 = £18,518.26
(c) Net cash to director now
- Cash received = salary £30,000 + dividends £70,000 = £100,000.00
- Less salary income tax £3,486.00
- Less employee NIC £1,394.40
- Less dividend tax £18,518.26 = Net cash £76,601.34
Totals for reconciliation
- Total paid to HMRC = CT £41,300 + IT £3,486 + EE NIC £1,394.40 + ER NIC £0 + dividend tax £18,518.26 = £64,698.66
- Net retention (director + company) = company retained £58,700 + net cash £76,601.34 = £135,301.34
Strategy: £100,000 dividend (no salary) – EA irrelevant
Company-level computation
- Profit before remuneration: £200,000.00
- Taxable profit (P): £200,000.00
- Corporation tax:
- CT = (200,000 × 25%) − ((250,000 − 200,000) × 3/200)
- = 50,000 − (50,000 × 0.015)
- = 50,000 − 750
- = £49,250.00
- Post-CT profit: £200,000 − £49,250 = £150,750.00
- Dividend paid: £100,000.00
- Net company retained: £150,750 − £100,000 = £50,750.00
Director personal tax (dividends only) – FULL WORKING
Dividends received: £100,000.00
Step 1: Apply personal allowance against dividends
- PA = £12,570
- Remaining dividend income = £100,000 − £12,570 = £87,430.00
Step 2: Apply dividend allowance (0%)
- Dividend allowance = £500
- Taxable dividends = £87,430 − £500 = £86,930.00
Step 3: Apply dividend rates by band
- Basic rate dividend slice = £37,700 @ 8.75%
- Tax = 37,700 × 0.0875 = £3,298.75
- Higher rate dividend slice = £86,930 − £37,700 = £49,230.00 @ 33.75%
- Tax = 49,230 × 0.3375 = £16,615.13
Total dividend tax = £3,298.75 + £16,615.13 = £19,913.88
Net cash to director now = £100,000 − £19,913.88 = £80,086.12
Totals for reconciliation
- Total paid to HMRC = CT £49,250 + dividend tax £19,913.88 = £69,163.88
- Net retention (director + company) = company retained £50,750 + net cash £80,086.12 = £130,836.12
Scenario B – WITHOUT Employment Allowance
Note: Personal taxes are unchanged from Scenario A. The only change is ER NIC becomes payable in salary strategies, which reduces taxable profit and alters corporation tax.
Strategy: £75,000 salary + £25,000 employer pension
- Profit before remuneration: £200,000.00
- Salary: £75,000.00
- Employer NIC payable (no EA): £10,500.00
- Employer pension: £25,000.00
- Taxable profit (P):
- £200,000 − £75,000 − £10,500 − £25,000 = £89,500.00
- Corporation tax:
- CT = (89,500 × 25%) − ((250,000 − 89,500) × 3/200)
- = 22,375 − (160,500 × 0.015)
- = 22,375 − 2,407.50
- = £19,967.50
- Net company retained:
- £89,500 − £19,967.50 = £69,532.50
Totals for reconciliation
- Total paid to HMRC = ER NIC £10,500 + CT £19,967.50 + IT £17,432 + EE NIC £3,510.60 = £51,410.10
- Net retention (director + company) = company retained £69,532.50 + net cash £54,057.40 + pension £25,000 = £148,589.90
Strategy: £30,000 salary + £70,000 dividend
Company-level computation
- Profit before remuneration: £200,000.00
- Salary: £30,000.00
- Employer NIC payable (no EA): £3,750.00
- Taxable profit (P):
- £200,000 − £30,000 − £3,750 = £166,250.00
- Corporation tax
- CT = (166,250 × 25%) − ((250,000 − 166,250) × 3/200)
- = 41,562.50 − (83,750 × 0.015)
- = 41,562.50 − 1,256.25
- = £40,306.25
- Post-CT profit: £166,250 − £40,306.25 = £125,943.75
- Dividend paid: £70,000.00
- Net company retained:
- £125,943.75 − £70,000 = £55,943.75
Totals for reconciliation
- Total paid to HMRC = ER NIC £3,750 + CT £40,306.25 + IT £3,486 + EE NIC £1,394.40 + dividend tax £18,518.26 = £67,454.91
- Net retention (director + company) = company retained £55,943.75 + net cash £76,601.34 = £132,545.09
Rounding and Reconciliation to the Summary Table
The summary table presents results in £000s to 2 decimal places. Minor differences between this working paper and the table arise only from rounding at the £000 presentation level.
For transparency, the table figures are derived by:
- Calculating in full £ amounts as above;
- Converting to £000 by dividing by 1,000;
- Rounding to 2 decimal places.
Return to the main salary vs dividend strategy guide:
UK Taxation for Small Companies & Start-ups (2025/26).