Why the next pound above £100,000 costs 62%
There is no 62% Income Tax rate. It is what happens when the Personal Allowance is taken away as income rises. Between £100,000 and £125,140 of income, each extra pound of salary costs you 62% in England, Wales or Northern Ireland, and 69.5% in Scotland.
What the taper does
The Personal Allowance is £12,570 in 2026/27. Once your adjusted net income passes £100,000, that allowance falls by £1 for every £2 of income above the threshold. It reaches nil at £125,140, which is the threshold plus twice the allowance.
So each extra pound is taxed at your normal rate, and it also drags 50p of previously tax-free income into tax. The two together are what people call the tax trap. Above £125,140 there is no allowance left to lose, and the rate falls back.
Salary and dividends both count towards adjusted net income, but they are taxed at different rates, so they do not cost the same through the band. That matters for an owner-director, because you choose the mix.
What the next £1,000 costs in 2026/27
| Total income | Allowance left | Salary, England, Wales or Northern Ireland | Salary, Scotland | Dividend, England, Wales or Northern Ireland | Dividend, Scotland |
|---|---|---|---|---|---|
| £95,000 | £12,570 | 42% | 47% | 35.75% | 35.75% |
| £100,000 | £12,570 | 62% | 69.5% | 58.25% | 57.75% |
| £110,000 | £7,570 | 62% | 69.5% | 58.25% | 58.25% |
| £125,140 | £0 | 47% | 50% | 39.35% | 39.35% |
| £130,140 | £0 | 47% | 50% | 39.35% | 39.35% |
Each rate is measured by taking £1,000 more income and comparing the tax and employee National Insurance due before and after. The salary columns include employee National Insurance, because that is what leaves your pocket. The dividend columns model a salary at the primary threshold with dividends on top, which is the common owner-director arrangement.
What this means for a director decision
Company profit becomes your income through salary and dividends, and you decide the split. When that income approaches £100,000, the comparison stops being about headline rates and starts being about which pound crosses the threshold.
At £150,000 of profit before director pay, the highest estimated take-home among the combinations tested uses a salary of £4,996 and a dividend of £110,328, for an estimated take-home of £85,321.
What this page does not cover
Adjusted net income is also reduced by Gift Aid donations and personal pension contributions. Tax Shrink does not model either, so it cannot tell you what they would do to your position. That is a conversation for your accountant, and it is a real one: those are among the few things that change where you sit in the band.
This page explains a rule and measures its effect. It is not tax advice and it does not recommend crossing or avoiding the threshold. If your household also receives Child Benefit, read how a separate charge tapers on the same income. If you also have a job outside the company, see what salary the company should pay you. Otherwise check the current rates and thresholds, read the methodology and official sources, then compare salary and dividend options.