The comparison
Income v profit
Here is a thing most people never realise: in Britain, a pound earned as company profit is taxed harderthan a pound earned as a wage. Over £50,000, the marginal rate on profit is around 53% against 42% on a salary. At the very top it’s 55% against 47%. Same money, taxed by how you earned it — and ownership loses.
The old rule of thumb was that dividends beat salary. It was true when dividend rates were low and carried no National Insurance. Two things killed it: dividend rates rose twice, and corporation tax jumped from 19% to 25% for most profitable companies. Stack corporation tax and dividend tax together and a pound of profit now meets a higher marginal rate than a pound of pay in every band above the basic rate. The chart below shows the two rates side by side — no pound signs, just the rate the state takes from your next pound.
The marginal rate on your next pound — earned two ways
What the state takes from the next pound, as a salary versus as company profit paid out to its owner. Above the basic rate, the profit line sits stubbornly higher — the anomaly most people never notice.
Both are “marginal” rates — the tax on the next pound at each income. The salary line carries the familiar spikes; the profit line carries corporation tax from the very first pound, then dividend tax on top.
Same band, two very different rates
Equal at the basic rate, then profit pulls clear: 42% vs 53% in the higher band, 47% vs 55% at the top. Profit is the more heavily taxed pound almost everywhere.
Why profit sits higher
An owner gets a personal allowance too — that’s the £12,570 salary they take tax-free, same as any employee. The difference is what happens to the rest. An employee’s further pay is taxed once: income tax plus National Insurance. An owner’s further money is taxed twice — first by corporation tax inside the company, which has no allowance and bites from the first pound of profit, then by dividend tax on the person who draws it. Stack those two and the effective rate on a pound of profit lands above the rate on a pound of pay in every band beyond the basic rate. The two lines never actually cross: even in the £100,000 trap, where the salary rate spikes to a punishing 62%, the profit rate is higher still, at around 69%. Most owners believe the opposite — which is exactly why the effective rates, side by side, are the whole story.
How these figures are calculated
The salary rate is the tax on the next pound of pay — income tax plus employee National Insurance, with the personal allowance and its £100,000 taper applied. The profit rate is the tax on the next pound of company profit drawn by its owner: corporation tax (with marginal relief) plus dividend tax on what’s left, for an owner on a £12,570 salary, computed with the same 2026/27engine as the rest of Kept. Both are plotted against the person’s total personal income, so the bands line up. Employer National Insurance on the salaried worker (paid by their employer, not them) is excluded — the comparison is what each person loses from their own side.
This is the free, general version. Kept does it on your actual numbers.
The calculators here use typical figures. The Kept dashboard rebuilds your real household — income, company, pensions, savings — finds the reliefs the tax code already lets you claim, and forecasts what they keep over 20 years.
See your own positionSources
- Income tax, National Insurance, dividend & corporation tax rates, 2026/27: GOV.UK.
- Personal allowance taper and additional-rate threshold: GOV.UK income tax rates.