Optimal Director Salary 2026/27: What to Pay Yourself

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For most owner-managed limited companies, the optimal director salary for 2026/27 is £12,570 a year (£1,048 a month), with the rest of your pay taken as dividends. That is not the answer for everyone. If your company cannot claim the Employment Allowance, a salary of £6,708 often comes out ahead, and £5,000 can suit some directors too. Below we show the thresholds, the arithmetic and the situations that change the answer.

This guide is for directors of UK limited companies who are also shareholders. It is general guidance, not personal advice: your own figures depend on other income, pensions, student loans and your company’s profit.

Budget update: the Chancellor delivers the Autumn Budget on 28 October. See our Autumn Budget 2026 predictions for what could change for salary, dividends and other director taxes.

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TL;DR

For most owner-managed limited companies, the optimal director salary for 2026/27 is £12,570 a year (£1,048 a month), with the rest of your pay taken as dividends.
If your company cannot claim the £10,500 Employment Allowance, for example a sole director with no other employees paid above £5,000, a salary of £6,708 often comes out ahead.
Any salary between £6,708 and £12,570 earns you a State Pension qualifying year without you paying National Insurance personally.
Employer National Insurance is 15% on earnings above £5,000, and dividends above the £500 allowance are taxed at 10.75%, 35.75% or 39.35%.
Check your own profit, other income and pension plans before you set your payroll for the year.

The 2026/27 thresholds that decide the answer

Three National Insurance figures and one tax figure drive almost every director salary calculation. The official 2026 to 2027 employer rates set them out:

Threshold	Per year	Per month	What it does
Secondary threshold	£5,000	£417	Employer National Insurance starts above this
Lower earnings limit	£6,708	£559	Earn at least this to get a qualifying year for State Pension
Primary threshold	£12,570	£1,048	Your own National Insurance starts above this
Personal Allowance	£12,570	£1,048	Income Tax starts above this

Employer National Insurance is charged at 15% on earnings above the secondary threshold, and employee National Insurance at 8% on earnings between the primary threshold and the upper earnings limit, according to the same GOV.UK page.

Two things follow. A salary between £6,708 and £12,570 earns you a State Pension year without you paying any National Insurance personally. And because the secondary threshold (£5,000) sits well below the Personal Allowance (£12,570), there is a band of salary where the company pays National Insurance but you pay no tax at all. That band is where the debate about the optimal salary lives.

Three salary levels compared

Here is what each level costs the company in employer National Insurance, using the 15% rate above. These figures ignore the Employment Allowance, which we cover in the next section.

Annual salary	Employer NI	Your Income Tax and NI	State Pension year	Personal Allowance used
£5,000	£0	£0	No, below £6,708	£5,000 of £12,570
£6,708	£256.20	£0	Yes	£6,708 of £12,570
£12,570	£1,135.50	£0	Yes	All of it

The employer NI figures are simple sums: 15% of (£6,708 − £5,000) is £256.20, and 15% of (£12,570 − £5,000) is £1,135.50.

Why salary is cheaper than it looks

Salary is a deductible business expense, so it reduces the profit your company pays Corporation Tax on. Employer NI is deductible as well. The extra £5,862 of salary between £6,708 and £12,570 therefore does not cost the company its full face value. The saving also matters on the personal side: dividends that fall inside your Personal Allowance are not taxed. If your salary uses less of the allowance, more of your first dividends are taxed instead.

The true comparison is therefore salary against dividends, after Corporation Tax, and it depends on which Corporation Tax rate your profit falls into. Our guide to the corporation tax marginal rate explains why profit between certain bands is taxed more heavily than it first appears, which can make a higher salary look better than it does on a headline-rate calculation.

The Employment Allowance catch for one-director companies

The Employment Allowance is £10,500 for 2026/27 and can reduce your employer Class 1 National Insurance bill. It would wipe out the £1,135.50 above in full, which is why you often see £12,570 recommended. But it has a rule that catches many owner-managed companies. According to HMRC’s CA44 booklet on National Insurance for company directors, a company where the only person paid above the secondary threshold is a director cannot claim it.

So the first question to ask is simple: does your company pay anyone else above £5,000 a year?

Note that a spouse or other family member only helps if they genuinely work for the company, are paid a commercial rate and earn above the secondary threshold. Putting someone on the payroll to unlock the allowance is exactly the kind of arrangement to run past an accountant first.

Which salary fits which director

The sole director with no employees: £6,708 or £12,570

With no Employment Allowance, the extra £5,862 of salary costs £879.30 of employer NI (15% of that band). Set against that, the salary is deductible and uses allowance that would otherwise shelter dividends. For many sole directors the two roughly balance out, which is why published guides disagree. If your profits are modest and you are not a higher-rate taxpayer, £6,708 is the cautious choice: you keep the State Pension year and keep NI low. If your profits are well above the point where dividends hit the higher rate, a full £12,570 salary can edge ahead because it reduces taxable profit at a higher marginal rate.

Comparison of two director salary options

Run both figures through your own numbers. The difference is typically a few hundred pounds a year, so do not agonise, but do not guess either.

The director who wants simplicity: £5,000

A £5,000 salary means no employer NI, no employee NI and no tax. The drawback is that it falls below the £6,708 lower earnings limit, so it does not on its own count as a qualifying year for your State Pension. If you have other employment or enough qualifying years already, that may not matter. If it does, you can pay voluntary Class 3 contributions, but check the cost against the NI you saved before relying on that route.

The director with other employment income

If you also earn a PAYE salary elsewhere, your Personal Allowance may already be used. A salary above the secondary threshold from your own company then attracts income tax from the first pound, and the case for a low salary strengthens. Your tax code matters here: see our glossary entry on tax codes.

The director paid well above £12,570

Once your salary passes the primary threshold you pay employee NI at 8%, and the company pays 15% on the full amount above £5,000. Both are avoided on dividends. That is why most advisers keep salary at or below the primary threshold and fill the remainder with dividends. The exceptions are mortgage applications, where lenders may weigh salary more than dividends (see our note on salary versus dividends for mortgages), and pension contributions, covered below.

The dividend side of the equation

Salary is only half of your pay. For 2026/27, GOV.UK sets the dividend allowance at £500, with dividends above it taxed at 10.75% for basic-rate taxpayers, 35.75% for higher-rate and 39.35% for additional-rate taxpayers. Dividends do not attract National Insurance, but they come from profit that has already borne Corporation Tax.

Two practical points:

Dividends need distributable profits. Your company can only pay dividends out of retained profits after Corporation Tax. Paying more than that creates an unlawful dividend, which may have to be repaid or treated as a director’s loan.
Dividend tax is paid through Self Assessment. No tax is deducted when a dividend is paid, so set money aside for the bill due by 31 January after the end of the tax year.

For worked examples at different profit levels, see our deeper pieces on dividend tax for 2026/27 and the salary and dividend pay mix.

Worked example: a sole director with £60,000 of profit before pay

Take a consultant who runs a company with no other employees and £60,000 of profit before any director pay. We compare a £6,708 salary with a £12,570 salary. The figures below are before Corporation Tax, which we leave out deliberately because the rate depends on your profit band.

Item	£6,708 salary	£12,570 salary
Salary	£6,708	£12,570
Employer NI (15% above £5,000)	£256.20	£1,135.50
Profit before tax after pay costs	£53,035.80	£46,294.50
Income Tax and NI on salary	£0	£0

The £12,570 route moves £6,741.30 less profit into the company-tax base, but it costs the company £879.30 more in NI. After Corporation Tax is applied to the remaining profit, the dividend you can pay differs by less than the headline gap, and the dividend allowance and Personal Allowance interact with what you draw. This is why we model each client’s case instead of quoting a single number. If you want your own version, the UK tax card lists the rates and allowances you will need.

Director loans, overdrawn accounts and the s455 charge

A common way directors get this wrong is to draw money ad hoc and sort it out later. Money taken that is neither salary, dividend nor expense goes through the director’s loan account. For 2026/27 the charge on overdrawn loans left unrepaid after the deadline rose to 35.75% from 6 April 2026, matching the higher dividend rate. Borrowing from your company to bridge a quiet month is therefore more expensive to get wrong than it used to be.

Our note on shortening the accounting period to avoid s455 charges covers the timing options. If the withdrawals fund equipment or vehicles for the company, it is also worth understanding how capital allowances work, for example full expensing against the annual investment allowance, because spending through the company can be cleaner than taking cash out personally.

Do not forget the pension route

Employer pension contributions are a third way to extract value that sits outside the salary and dividend debate. They do not attract employer NI and can reduce taxable company profit, subject to annual allowance limits and the rule that the contribution must be wholly and exclusively for the business. We set out the limits in how much a company can pay into a director’s pension. For directors with higher profits, a pension contribution often beats an extra dividend.

Paperwork that trips directors up

Register the company as an employer. Even a director-only payroll must run through PAYE, with each payment reported to HMRC on or before payday, including when no tax or National Insurance is due.
Minute every dividend. Record each dividend in board minutes and issue a dividend voucher to each shareholder.
Check profits first. Confirm there are enough distributable profits before you declare a dividend, especially when you take interim dividends during the year.
Keep the director’s loan account current. Money taken that is not salary or a declared dividend sits on the loan account and can trigger the s455 charge.
File Self Assessment if you need to. Directors with dividends or other income above the allowances should make sure they are registered and file on time.

Our perspective

We work mostly with tech and fintech founders, and the salary question looks different at their stage. A pre-seed founder with no revenue often takes no salary at all or a minimal one, and the right amount is whatever the cash and investor expectations support. Once a company hires its first employee above £5,000, the Employment Allowance changes the sums and the answer is often to move to £12,570. Once the company is raising, the question moves from “what is the cheapest salary” to “what does the investor expect to see”, and founders on tiny salaries sometimes need to adjust to a market rate.

Our advice is to treat the salary as a decision made once a year, with a calculation behind it, and not as a number copied from a blog. The best figure for a sole consultant on £150,000 of profit is different from the best figure for a funded start-up with five staff. A hundred pounds of tax saved is never worth a missed filing, an overdrawn loan account or a dividend paid without profits to support it.

Working it out with us

If you would rather have the numbers done than read about them, we set director pay as part of our recurring accounting and tax work. Our pricing page lists the Core Services plan at £249 per month, the Blue Plan at £549 per month and the Black Plan from £1999 per month. Our advisory and tax planning service covers salary and dividend modelling, and for founders we also act as outsourced finance director.

FAQ

What is the most tax-efficient director salary in 2026/27?

For most directors it is £12,570 a year (£1,048 a month), provided the company can claim the Employment Allowance. For a sole director with no other paid staff, £6,708 is often as good or better, because it keeps employer NI low and still earns a State Pension qualifying year. The right figure depends on your profit and other income.

Is there a legal minimum salary for a company director?

Company law does not set a specific minimum salary for a director who is not an employee. The National Minimum Wage can apply where a director has an employment contract, so check your position. The practical minimum most advisers use is £6,708, the lower earnings limit, because below it you do not earn a State Pension qualifying year.

Do I pay more tax because I am a director?

Not simply because of the title. You pay Income Tax and National Insurance on salary, and dividend tax on dividends, in the same way as any individual. The extra rules concern how you take the money out: payroll registration, dividends from available profits, loan account charges and close company disclosures on your tax return.

What are the dividend thresholds in the UK for 2026/27?

The tax-free dividend allowance is £500. Above it, dividends are taxed at 10.75% for basic-rate, 35.75% for higher-rate and 39.35% for additional-rate taxpayers. Dividends inside your Personal Allowance are also not taxed, which is why the salary level affects your dividend tax.