Director's Salary 2026/27: The Optimal Number to Pay Yourself

The short answer: the optimal 2026/27 director's salary

Run salary at £12,570 for the 2026/27 tax year and take everything else as dividends. That number uses your full personal allowance, so there is no income tax on the salary, and it sits at the primary threshold, so there is no employee National Insurance either. LOYALS is a King's Cross firm of accountants and business consultants that handles company accounts, director payroll and dividend planning for owner managed companies across London, and this is the figure we set on almost every payroll we run.

The reason £12,570 is right for almost everyone comes down to one fact: salary is deductible against corporation tax. Whether or not your company can claim the Employment Allowance, the tax the salary saves the company is larger than the employer National Insurance it triggers. Three changes since 2024 pulled this calculation apart, so the number your accountant gave you two years ago is probably no longer the best one. Our management accounts service keeps a running view of the profit figure that decides how much dividend sits behind this salary.

Employer National Insurance, the National Insurance the company pays on wages, rose from 13.8 percent to 15 percent in April 2025. The Secondary Threshold, the wage level at which employer National Insurance starts, fell from £9,100 to £5,000 at the same time. And on 6 April 2026 the dividend ordinary rate rose from 8.75 percent to 10.75 percent. The figures below use HMRC's rates and thresholds for employers 2026 to 2027, and we file the company accounts and Corporation Tax return that the salary feeds into.

If you are the only person on the payroll

A single-director company with no other employees cannot claim the Employment Allowance, so the answer here is the one that changed most. The rule that blocks single-director companies has been in force since 2016 and still applies for 2026/27, even after the wider eligibility expansion from April 2025. If your company is genuinely just you, that is the box you sit in, and it is the most common setup among the one-person companies our freelancer and contractor clients run.

For years the standard advice was to pay yourself exactly at the Secondary Threshold, which is now £5,000, so the company pays no employer National Insurance at all. That advice has quietly gone out of date. Paying £12,570 does trigger employer National Insurance of £1,135.50, which is 15 percent of the £7,570 sitting above the threshold, but the whole salary and that National Insurance are deductible against corporation tax. At the 19 percent small profits rate the deduction is worth more than the National Insurance costs, so a basic-rate single-director company ends up roughly £1,300 a year better off at £12,570 than at £5,000. It also earns a state pension year, which £5,000 does not.

There is a leaner middle option worth knowing about. If you would rather keep employer National Insurance to a minimum but still protect your pension record, run salary at £6,708, the Lower Earnings Limit for 2026/27. That triggers just £256.20 of employer National Insurance, which is 15 percent of the £1,708 above £5,000, and secures the qualifying year. You give up a little of the corporation tax saving that £12,570 delivers, but for a director who wants the smallest possible payroll footprint it is a sensible place to sit. So the honest ranking for a single director in 2026/27 is £12,570 first, £6,708 a close second, and £5,000 a distant third that only makes sense if cash in the company is genuinely tight this year.

If you can claim the Employment Allowance

If your company has at least one other employee genuinely paid above the £5,000 Secondary Threshold, you can claim the Employment Allowance, and the answer becomes clean. For 2026/27 the allowance is £10,500 a year, and the old £100,000 employer National Insurance cap on eligibility was removed in April 2025, so more companies now qualify. HMRC's Employment Allowance guidance sets out the eligibility tests.

The allowance wipes out the first £10,500 of employer National Insurance the company owes for the year. On a single director's £12,570 salary the employer National Insurance generated is £1,135.50, comfortably inside that £10,500, with plenty left over to cover other staff. So the cash cost of the employer National Insurance is nil, the salary sits within the personal allowance, and the whole £12,570 is deductible against corporation tax. The net cost to the company of putting £12,570 in the director's pocket is roughly £10,182 at the 19 percent rate.

The one thing to check is genuine eligibility. The other employee has to be real and paid above £5,000, not a spouse added to the payroll on paper who never actually works in the business. HMRC does look at this, and a wrongly claimed allowance is the company's to repay. If you added a family member to the payroll purely to unlock the allowance, get the arrangement reviewed before you rely on it. Our full guide to the Employment Allowance for a limited company works through the connected-company rule and the back-claim window.

Why not just take it all as salary?

Running everything through PAYE almost never wins, and the maths shows why quickly. Once salary passes £12,570, every extra pound attracts income tax at 20 percent or more, plus employee National Insurance at 8 percent up to the upper earnings limit, plus employer National Insurance at 15 percent. Extract the same profit as a dividend and the company pays corporation tax at 19 percent, then you pay dividend tax at 10.75 percent in the basic band or 35.75 percent in the higher band. The combined rate is lower.

Look at it as the profit the company has to earn to put £10,000 of cash in your pocket. For a basic-rate director the salary route burns about £15,972 of profit, against roughly £13,833 through dividends, a real saving of over £2,000. For a higher-rate director the gap narrowed after the April 2026 rise, to a few hundred pounds per £10,000, but dividends still come out ahead. The position LOYALS takes on this is firm: salary to £12,570, dividends above it, and that holds unless your total income is low enough that the dividend allowance and basic-rate band swallow everything, in which case the gap is small enough that simplicity can win.

The April 2026 dividend rise, in pounds

For directors taking sizeable dividends the rate change has a real cash impact. From 6 April 2026 the dividend ordinary rate moved from 8.75 percent to 10.75 percent and the upper rate from 33.75 percent to 35.75 percent, confirmed in HMRC's changes to dividend income tax rates. The additional rate stayed at 39.35 percent, and the dividend allowance is still £500. The full rate bands are on HMRC's tax on dividends page.

A basic-rate director taking £40,000 of dividends in 2026/27, after the £500 allowance, pays roughly £790 more dividend tax than in 2025/26. A higher-rate director taking £60,000, where part falls in the ordinary band and part in the upper band, pays around £1,200 more. It is meaningful money, but it does not flip the structural answer: dividends still beat salary above the personal allowance.

It helps to see the whole dividend route on one picture. Of the £13,833 of profit a basic-rate company gives up to hand you £10,000, corporation tax takes £2,628 and dividend tax takes £1,205 at the new 10.75 percent rate, so £10,000, about 72 percent, actually reaches you. That 72 percent is the number the April 2026 rise nibbled at, and it is still comfortably ahead of the salary route.

The cleanest lever is timing. If your company has retained profits you were going to distribute and cash flow allows, the rate you pay depends on the date the dividend is declared, so the planning happens before the year end, not after. Employer pension contributions are the other route, particularly for higher-rate directors, because a company pension contribution sits outside the dividend regime entirely and stays deductible against corporation tax.

The state pension trap at £5,000

A £5,000 salary earns you nothing towards your state pension, and a lot of directors do not realise it. To pick up a qualifying year you need earnings at or above the Lower Earnings Limit, which is £6,708 a year (£129 a week) for 2026/27. The £5,000 Secondary Threshold sits below that line, so a director paid only £5,000 from their company builds no entitlement from that work. The rules on qualifying years sit in GOV.UK's guidance on your National Insurance record and the state pension.

Two fixes exist if this matters to you. The first is to run salary up to £6,708 or higher, which secures the year for about £256 of employer National Insurance. The second is to keep salary at £5,000 and pay voluntary Class 3 National Insurance, which is £18.40 a week, so about £956.80 for the 2026/27 year. For a director building their record over decades, running the slightly higher salary is usually the cheaper route by a wide margin, which is another reason the modern answer leans towards £12,570 rather than £5,000.

If your profit is between £50,000 and £250,000

Companies with profit in this band pay corporation tax at an effective 26.5 percent on the slice above £50,000, under marginal relief, rather than the 19 percent small profits rate or the 25 percent main rate. HMRC's marginal relief guidance sets out the bands. The higher effective rate does not change which salary wins, but it does make the salary deduction worth more, so £12,570 becomes an even easier call.

Where marginal relief really earns its keep is the pension decision. A company at the 26.5 percent effective rate gets a 26.5 percent corporation tax deduction on employer pension contributions, and those contributions carry no dividend tax and no National Insurance. For a higher-rate director who does not need all the cash this year, routing profit into a pension through the company is one of the most efficient moves available, and it is worth modelling alongside your salary and dividend mix rather than treating it as an afterthought.

What to do before your next payroll run

Most of this is sequencing rather than exotic planning, and the actions are simple.

1. Set salary at £12,570 for 2026/27 unless you have a specific reason not to. If you are a single director who wants the smallest payroll footprint, £6,708 is the fallback that still protects your pension year.
2. Check your Employment Allowance position. If a second employee is genuinely paid above £5,000, claim the £10,500 allowance so the employer National Insurance costs you nothing.
3. Run pensions through the company, not personally. Employer contributions sidestep dividend tax and stay deductible against corporation tax at your company's rate.
4. Mind the dividend timing. If you hold retained profits and were planning a large dividend, the date you declare it decides the rate, so plan it before the year end.
5. Re-check if anything changed. A second income source, a jointly held company, or a mid-year payroll change can all move the answer, so it is worth a quick review rather than assuming last year's number still fits.

If you would rather not do the arithmetic yourself, this is exactly the kind of thing we sort in a short call. LOYALS is a team of London accountants and business consultants who run company payroll, file the accounts and the Corporation Tax return, and set the salary and dividend mix as one job. Owner-managers running a personal service company in healthcare should read the salary alongside their IR35 position, which our guide on IR35 for locum doctors and dentists works through. And if you are still weighing whether to incorporate at all, our sole trader versus limited company at £50K comparison is the place to start.