# What is the most tax-efficient salary for directors in 2026/27?

Last updated: 19 October 2026
Category: Directors

**Quick answer:** The most tax-efficient director's salary in 2026/27 is typically £12,570 (the personal allowance). This uses your full tax-free allowance while keeping NI costs low.

## Detailed explanation

**Optimal director's salary for 2026/27**

The most tax-efficient salary depends on your company's situation, but for the majority of single-director limited companies, the answer is **£12,570 per year** (the personal allowance).

**Why £12,570 works best**

At this salary level:
- You pay **zero Income Tax** (salary equals the personal allowance)
- You pay **zero employee NI** (earnings below the primary threshold of £12,570)
- Your company pays **employer NI of 15%** on the amount above the secondary threshold (£5,000), which is approximately £1,136
- The salary is a **deductible business expense**, saving Corporation Tax of £2,517-£3,143 (at 19-25%)
- You **qualify for State Pension** credits

**The maths for 2026/27**

Salary: £12,570
- Income Tax: £0
- Employee NI: £0
- Employer NI: (£12,570 - £5,000) x 15% = £1,136
- Total cost to company: £13,706
- Corporation Tax saved: £13,706 x 25% = £3,427 (or x 19% = £2,604)
- Net cost after CT relief: £10,280-£11,102

**Alternative: £5,000 salary (secondary threshold)**

Some directors prefer a salary of £5,000 to avoid all NI entirely:
- Income Tax: £0
- Employee NI: £0
- Employer NI: £0
- Does not earn a State Pension qualifying year on its own (below the Lower Earnings Limit of £6,708 for 2026/27)
- Lower Corporation Tax deduction

**When a higher salary makes sense**

- You have a **student loan** to repay (threshold is £29,385 for Plan 2 in 2026/27)
- You need **higher pensionable earnings** for pension calculations
- Your company is **loss-making** (salary creates a bigger loss to carry forward)
- You have other employees and qualify for the **£10,500 Employment Allowance**
- You need to demonstrate higher personal income for a **mortgage application**

**Key changes to know for 2026/27**

From April 2025 (unchanged for 2026/27):
- Employer NI rate increased from 13.8% to **15%**
- Employer NI threshold dropped from £9,100 to **£5,000**
- This makes the gap between £5,000 and £12,570 salary cost more in employer NI than before
- But the Corporation Tax saving still outweighs the NI cost for most directors

From April 2026:
- Dividend tax rose: the basic rate from 8.75% to **10.75%** and the higher rate from 33.75% to **35.75%**
- Dividends are still taxed well below salary, so the strategy does not change, but the tax on dividends is higher than it was

**Bottom line**: For most profitable single-director companies, £12,570 salary plus dividends remains the optimal strategy in 2026/27, despite the employer NI increases and the higher dividend tax rates.

Source: HMRC Tax Rates 2026/27

## Real-world examples

### Single Director with No Other Income

Sarah runs a small marketing consultancy. She has no other income sources. Taking a salary of £12,570 allows her to utilise her full personal allowance, minimising her overall tax burden. The company will pay employer's NI only on the portion of her salary above the secondary threshold.

### Director with Significant Outside Income

John also works part-time in a PAYE role earning £30,000. Taking the £12,570 salary would push him further into a higher tax bracket. In John's case, it may be more tax-efficient to take a minimal salary to avoid further income tax and rely primarily on dividends.

### Husband and Wife Directors

Mark and Lisa are both directors of their software development company. They can each draw a salary of £12,570, utilizing both of their personal allowances. This reduces the company's corporation tax liability while minimising personal income tax and employee NI contributions for both directors.

## Common mistakes to avoid

- Assuming the optimal salary is the same every year without checking the updated personal allowance.
- Forgetting to factor in other sources of income when determining the most tax-efficient salary.
- Paying yourself a salary significantly below the personal allowance and missing out on utilising your tax-free earnings.
- Ignoring the employer's National Insurance liability when calculating the true cost of your salary.

## Frequently asked questions

### What happens if I pay myself more than £12,570?

You'll start paying income tax at your marginal rate (20%, 40%, or 45%) on the amount exceeding £12,570. You'll also pay employee's National Insurance contributions on earnings above the NI threshold.

### Does the £12,570 salary affect my ability to claim expenses?

No, your ability to claim allowable business expenses is separate from your salary. You can still claim legitimate business expenses to reduce your company's corporation tax, regardless of your salary.

### How often should I pay myself this salary?

You can pay yourself monthly (approximately £1,047.50 per month) or in a single annual payment. Monthly payments are generally easier for budgeting and cash flow management.

### Where does the threshold for employer NI start in 2026/27?

The employer NI secondary threshold is £5,000 in 2026/27, which is different from the personal allowance. You'll be liable for employer's NI contributions at 15% on the portion of your salary above that threshold.

## Practical tips

- Use accounting software like AccountsOS to automatically calculate and track your salary, tax, and National Insurance liabilities.
- Before the start of each tax year, review your personal circumstances and projected company profits to determine if the £12,570 salary remains optimal for you.
- Consult with a qualified accountant or tax advisor to get personalized advice tailored to your specific financial situation and business structure.
- Keep accurate records of all salary payments and deductions to ensure compliance with HMRC regulations.

## Related questions

- [How much salary should I pay myself as a director?](https://accounts-os.com/questions/how-much-salary-should-i-pay-myself)
- [How much dividend can I take from my company?](https://accounts-os.com/questions/how-much-dividend-can-i-take)
- [How does National Insurance work for company directors?](https://accounts-os.com/questions/what-is-national-insurance-for-directors)