The Optimal Director's Salary for 2026/27

The Annual Question Every Director Asks

Every April, UK limited company directors face the same question: how much salary should I pay myself? The answer has shifted significantly over the past two years. With employer National Insurance sitting at 15% and the secondary threshold slashed to £5,000, the longstanding advice to pay yourself the personal allowance deserves a fresh look.

This guide walks through the three main salary strategies for 2026/27, with full calculations so you can choose the right one for your situation.

Key Rates and Thresholds for 2026/27

Before running the numbers, here are the figures that matter:

Two changes from the previous year's analysis matter most: the dividend tax rate rising to 10.75% and the employer NI secondary threshold remaining at £5,000 (down from £9,100 before April 2025). Both push the calculation in different directions.

Strategy 1: Salary at £5,000 (Employer NI Secondary Threshold)

The most conservative approach. You pay yourself just enough to reach the employer NI threshold, avoiding employer NI entirely.

The Calculation

Who This Suits

This strategy makes sense if you are extracting very modest amounts from the company and want to minimise costs absolutely. However, you lose £7,570 of unused personal allowance — income that could have been extracted tax-free as salary. You would also fall below the Lower Earnings Limit of £6,396 for a qualifying State Pension year unless you are earning enough elsewhere or claiming NI credits.

Verdict: Too cautious for most directors. The unused personal allowance is a significant waste.

Strategy 2: Salary at £12,570 (Personal Allowance)

This has been the standard recommendation for years, and it still holds up — but the employer NI cost is higher than it used to be.

The Calculation

The Real Question: Is £1,135.50 in Employer NI Worth Paying?

Compare taking the extra £7,570 as salary versus taking it as dividends:

As salary (extra £7,570 above £5,000):

• Employer NI: £1,135.50
• Corporation Tax relief on salary + NI: -£2,176.38
• Net cost: £6,529.12 to put £7,570 in your pocket

As dividends (extra £7,570):

• Corporation Tax on profit: £1,892.50 (25%)
• Dividend tax at 10.75%: First £500 at 0% (if allowance unused), remaining £7,070 at 10.75% = £760.03
• Net cost: £7,570 profit - £1,892.50 CT = £5,677.50 distributable, minus £760.03 dividend tax = £4,917.47 in your pocket

Wait — that comparison shows salary wins clearly. With £12,570 salary, you pocket the full £7,570 at a company cost of £6,529.12. To put the same £7,570 in your pocket via dividends, the company needs to generate more profit and you still pay dividend tax.

Salary is more efficient up to the personal allowance even with 15% employer NI. The corporation tax deduction on both the salary and the employer NI more than offsets the NI cost.

Who This Suits

Most single-director companies. You use your full personal allowance, pay zero income tax, zero employee NI, and the employer NI is more than offset by corporation tax relief. You also comfortably qualify for a State Pension year.

Verdict: Still the optimal choice for the majority of directors.

Strategy 3: Salary Above £12,570

Once your salary exceeds the personal allowance, income tax kicks in at 20% and employee NI at 8%. Combined with employer NI at 15%, the marginal cost becomes punishing.

The Calculation (£20,000 salary)

On the extra £7,430 above the personal allowance, you are paying 20% income tax, 8% employee NI, and your company is paying 15% employer NI. Even with 25% CT relief on the salary and NI, the effective marginal rate on that slice is high. Taking that £7,430 as dividends at 10.75% would put more money in your pocket.

Verdict: Almost never optimal. Only consider this if you need higher salary for mortgage applications or pension contribution headroom.

The Employment Allowance Changes Everything

The Employment Allowance for 2026/27 is £10,500. If your company qualifies, this wipes out employer NI entirely for many small employers.

Qualification Rules

Your company qualifies if:

• Its employer NI bill in the previous tax year was under £100,000
• It has at least one employee who is not a sole director

That second condition is critical. A company with a single director and no other employees does not qualify. If you employ your spouse, even part-time, you unlock the allowance.

With Employment Allowance

If you qualify, the entire employer NI discussion becomes irrelevant for salary amounts generating less than £10,500 of employer NI. A £12,570 salary produces just £1,135.50 of employer NI — fully wiped out by the allowance.

This means you could even consider a higher salary (for mortgage or pension purposes) without the employer NI penalty, up to the point where your total employer NI across all employees exceeds £10,500.

Employing Your Spouse

Many directors employ their spouse specifically to unlock Employment Allowance. If your spouse does genuine work for the company (admin, bookkeeping, marketing), you can pay them a salary and claim the allowance. HMRC expects the work to be real and the salary to be reasonable for the role.

Worked Example: Director With £80,000 Profit

Let us put this together for a sole director with £80,000 pre-salary company profit and no Employment Allowance.

Optimal approach: £12,570 salary + dividends for the rest

Compare with taking no salary (all dividends):

The salary-plus-dividends approach consistently wins because you are using your personal allowance and getting corporation tax relief on the salary cost.

Key Dates

• 6 April 2026 — New tax year begins, new dividend tax rates and thresholds apply
• 19 April 2026 — First payroll submission deadline for 2026/27 PAYE
• 5 April 2027 — End of 2026/27 tax year
• 31 January 2028 — Self Assessment deadline for 2026/27

What to Do Now

1. Review your current salary — If you are still paying below the personal allowance, you are likely leaving money on the table.
2. Check Employment Allowance eligibility — If you have any employees beyond yourself, you may qualify for up to £10,500 off your employer NI bill.
3. Consider your spouse — If they do real work for the company, employing them can unlock the allowance and provide additional tax efficiency.
4. Update your payroll — Make sure your payroll reflects the new rates from 6 April 2026.
5. Factor in the dividend tax rise — With dividends taxed at 10.75% from April, the gap between salary and dividend efficiency has narrowed slightly.

AccountsOS calculates your optimal salary-dividend split automatically with the salary and dividend calculator, and handles your payroll submissions so your pay is always set at the most efficient level.

Frequently Asked Questions

Should I pay myself £5,000 or £12,570 as a director in 2026/27?

For most directors, £12,570 is the better choice. While you will pay £1,135.50 in employer NI on the slice between £5,000 and £12,570, the corporation tax relief on that salary (and the NI itself) more than compensates. You also use your full personal allowance, which would otherwise go to waste.

Does Employment Allowance apply to a sole director company?

No. A company where the sole employee is also the sole director does not qualify for Employment Allowance. You need at least one other employee — which is why many directors employ their spouse for genuine part-time work to unlock the £10,500 allowance.

Has the optimal salary changed from 2025/26 to 2026/27?

The optimal salary figure remains £12,570 for most directors. The key difference in 2026/27 is the dividend tax rate rising from 8.75% to 10.75%, which actually makes salary slightly more attractive relative to dividends than it was last year. The employer NI rate and thresholds are unchanged from 2025/26.

What if I need a higher salary for a mortgage application?

Some mortgage lenders weight salary more heavily than dividends. If you need to demonstrate higher salary income, you can increase your salary above £12,570, but be aware of the tax cost: each pound above the personal allowance attracts 20% income tax, 8% employee NI, and 15% employer NI (partially offset by 25% CT relief). Work with your broker to find the minimum salary that satisfies lender requirements.