How much of the next pound goes to the State?
What does “Total to State” mean?
This table shows how much of the next pound of income or business cost goes to the State in Income Tax, Corporation Tax and National Insurance, where applicable. These are marginal rates: they apply to an additional amount within the band shown. They are not the average tax rate on someone’s total annual income.
For employment, the calculation includes Income Tax, employee’s National Insurance and employer’s National Insurance. It expresses the combined deductions as a percentage of the employer’s total cost, including employer NI. For example, an extra £100 of basic-rate gross salary costs the employer £115. The State receives £20 Income Tax, £8 employee NI and £15 employer NI: £43 in total, or 37.39% of the £115 cost.
For dividends, the calculation starts with company profit before Corporation Tax, then includes the shareholder’s dividend tax on the balance distributed. At 19% Corporation Tax and 10.75% dividend tax, £100 of company profit produces £19 of Corporation Tax and approximately £8.71 of dividend tax. The combined marginal burden is therefore 27.71%.
For self-employment, the total combines Income Tax and Class 4 National Insurance as a percentage of additional taxable trading profit. For landlords, it shows Income Tax on additional taxable rental profit, with no National Insurance in the cases illustrated.
The Personal Allowance taper rows include the extra tax caused by withdrawing the allowance as adjusted net income rises above £100,000. This can produce a substantially higher marginal rate. The colour scale highlights the combined percentage: greener cells indicate a lower proportion going to the State, while amber and rose indicate progressively higher proportions.
| Tax band | Marginal CT rate | Income Tax rate | Employer NI | Employee NI | Self-employed NI | PA taper tax uplift | Total to State |
|---|---|---|---|---|---|---|---|
| Employee | |||||||
| Basic rate | — | 20.00% | 15.00% | 8.00% | — | 0.00% | 37.39% |
| Higher rate | — | 40.00% | 15.00% | 2.00% | — | 0.00% | 49.57% |
| Additional rate | — | 45.00% | 15.00% | 2.00% | — | 0.00% | 53.91% |
| PA taper | — | 40.00% | 15.00% | 2.00% | — | 20.00% | 66.96% |
| Dividend | |||||||
| Basic rate | 19.00% | 10.75% | — | — | — | 0.00% | 27.71% |
| Basic rate | 26.50% | 10.75% | — | — | — | 0.00% | 34.40% |
| Basic rate | 25.00% | 10.75% | — | — | — | 0.00% | 33.06% |
| Higher rate | 19.00% | 35.75% | — | — | — | 0.00% | 47.96% |
| Higher rate | 26.50% | 35.75% | — | — | — | 0.00% | 52.78% |
| Higher rate | 25.00% | 35.75% | — | — | — | 0.00% | 51.81% |
| Additional rate | 19.00% | 39.35% | — | — | — | 0.00% | 50.87% |
| Additional rate | 26.50% | 39.35% | — | — | — | 0.00% | 55.42% |
| Additional rate | 25.00% | 39.35% | — | — | — | 0.00% | 54.51% |
| PA taper (1) | 19.00% | 35.75% | — | — | — | 17.88% | 62.44% |
| PA taper (1) | 26.50% | 35.75% | — | — | — | 17.88% | 65.91% |
| PA taper (1) | 25.00% | 35.75% | — | — | — | 17.88% | 65.22% |
| PA taper (2) | 19.00% | 35.75% | — | — | — | 22.50% | 66.18% |
| PA taper (2) | 26.50% | 35.75% | — | — | — | 22.50% | 69.31% |
| PA taper (2) | 25.00% | 35.75% | — | — | — | 22.50% | 68.69% |
| Self-employed | |||||||
| Basic rate | — | 20.00% | — | — | 6.00% | 0.00% | 26.00% |
| Higher rate | — | 40.00% | — | — | 2.00% | 0.00% | 42.00% |
| Additional rate | — | 45.00% | — | — | 2.00% | 0.00% | 47.00% |
| PA taper | — | 40.00% | — | — | 2.00% | 20.00% | 62.00% |
| Landlord | |||||||
| Basic rate | — | 24.00% | — | — | — | 0.00% | 24.00% |
| Higher rate | — | 44.00% | — | — | — | 0.00% | 44.00% |
| Additional rate | — | 49.00% | — | — | — | 0.00% | 49.00% |
| PA taper | — | 44.00% | — | — | — | 22.00% | 66.00% |
Salary or dividends at the top end?
The traditional preference for drawing company profits as dividends should not be taken for granted. Once personal income is above £125,140 and the Personal Allowance has been fully withdrawn, the table shows a combined marginal burden of 53.91% for salary or bonus, compared with 54.51% for dividends where the company’s marginal Corporation Tax rate is 25%.
On these assumptions, salary or bonus is slightly more tax-efficient: the difference is approximately 0.60 percentage points of the company’s pre-tax cost or profit. At the ordinary higher rate, outside the Personal Allowance taper, the corresponding comparison is 49.57% for salary or bonus against 51.81% for dividends at 25% Corporation Tax.
These figures assume that salary and employer’s NI qualify for Corporation Tax relief, Employment Allowance is exhausted and the individual is liable to the employee NI shown. The 25% marginal Corporation Tax case generally applies above £250,000 of company taxable profits for a full accounting year with no associated companies. The company’s profit threshold and the individual’s income threshold are separate tests.
The top-end advantage is modest, but it illustrates why the salary-versus-dividend calculation needs reviewing rather than relying on tradition. These are marginal comparisons for the next pound extracted; the best arrangement for total annual income still depends on the individual circumstances.
Why are there two dividend Personal Allowance taper rates?
PA means Personal Allowance. Between adjusted net income of £100,000 and £125,140, £1 of allowance is withdrawn for every £2 of additional income. The two dividend cases show how the tax effect differs depending on whether that allowance was sheltering dividends or salary. The examples below assume an extra £100 dividend received entirely within the taper band, with no other reliefs affecting the calculation.
PA taper (1): dividends only — 17.88% uplift
With dividends only, an extra £100 dividend withdraws £50 of Personal Allowance. That exposes a further £50 of existing dividends to tax at 35.75%.
Extra tax from lost allowance: £50 × 35.75% = £17.875, rounded to £17.88. This is the 17.88% taper uplift shown in the table.
The extra £100 dividend itself attracts £35.75 tax. Including the allowance withdrawal, the personal marginal tax is £35.75 + £17.875 = £53.625 per £100, or 53.625% before rounding.
PA taper (2): fixed £12,570 salary plus dividends — 22.50% uplift
Here the Personal Allowance initially shelters the £12,570 salary. As dividends increase, the salary stays fixed. An extra £100 dividend again withdraws £50 of allowance, but this has two effects:
- £50 of previously exempt salary becomes taxable at 20%, creating £10.00 extra salary Income Tax.
- That newly taxable £50 salary occupies £50 of the basic-rate band. Because salary is taxed before dividends, it pushes £50 of existing dividends from the 10.75% dividend band into the 35.75% band. Extra dividend tax: £50 × (35.75% − 10.75%) = £12.50.
The total extra tax from losing the allowance is therefore £10.00 + £12.50 = £22.50 per £100 of additional dividend. This explains the 22.50% taper uplift. It does not arise from applying the 45% additional rate to the lost allowance.
Including £35.75 tax on the new dividend itself, the personal marginal tax is £35.75 + £22.50 = £58.25 per £100, or 58.25%. No additional employee NI arises in this example because the salary has not changed.
How Corporation Tax fits into the final column
These personal marginal rates apply to the dividend received after Corporation Tax. The three Corporation Tax rows are separate company-level cases: 19%, 26.5% or 25%. They do not change how the personal taper uplift is calculated.
Combined marginal rate = marginal Corporation Tax rate + (1 − marginal Corporation Tax rate) × personal marginal tax rate.
For example, at 25% Corporation Tax, an extra £100 of company profit leaves £75 to distribute. In taper case (1), total tax is £25 + (£75 × 53.625%) = £65.21875, rounded to £65.22. In taper case (2), it is £25 + (£75 × 58.25%) = £68.6875, rounded to £68.69. These are the 65.22% and 68.69% figures in the table. Calculations use unrounded rates.
Further detail: HMRC: Personal Allowance withdrawal and HMRC: salary, savings and dividend income ordering.
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- Basis: England, Wales and Northern Ireland; 2027–28 rates announced as at 10 November 2026. Marginal rates above allowances, excluding other reliefs and benefit withdrawal.
- Total to State: percentage of total employer cost for salary; company profit before Corporation Tax for dividends; taxable trading or rental profit for the other categories.
- PA = Personal Allowance. Taper applies at adjusted net income of £100,000–£125,140. (1) Dividends only. (2) £12,570 salary plus dividends, with salary fixed. The taper column shows the additional tax caused by lost allowance, not a separate tax.
- 26.50% is the standard marginal Corporation Tax rate within the marginal relief band, not the headline or average CT rate. Salary and employer NI are assumed deductible for CT. Employer NI assumes Employment Allowance is exhausted; NI rows assume an individual liable to the contributions shown.
- Dividend rates apply to the amount distributed after Corporation Tax. The component percentages cannot all be added directly: the final column accounts for their different bases. A dash means not applicable.
Sources: GOV.UK Budget 2026 Annex A: rates and allowances; GOV.UK Corporation Tax rates. Combined rates calculated by Steve Watt Associates.