Director's salary for 2026/27
Updated 7 November 2026
For most sole directors in 2026/27 the right salary is £12,570. Pay less and you waste a personal allowance you cannot carry forward. Pay more and you hand over National Insurance on money that could have been a dividend.
Three thresholds on the way up
At £5,000 the company starts paying employer National Insurance, at 15% on every pound above it. This is the secondary threshold, so a £12,570 salary costs the company something before it costs you anything.
At about £6,500 you cross the lower earnings limit. Above it, the year counts as a qualifying year for the state pension, even though neither you nor the company pays employee NI between there and £12,570. Below it, the year does not count.
At £12,570 you reach the personal allowance. Income tax at 20% and employee NI at 8% both start here.
Why the allowance usually wins
Between £5,000 and £12,570 each pound of salary costs the company 15p of employer NI. Salary and employer NI are both deductible, though, so each pound also saves corporation tax at somewhere between 19% and 26.5%, depending on where the company’s profit sits. The saving beats the cost across that whole range, and you pay no personal tax on the salary.
Above £12,570 it flips. Each extra pound of salary is taxed at 20% income tax plus 8% employee NI, and the company still pays 15% employer NI on top. The same pound taken as a dividend, after corporation tax, is taxed at 10.75%. Salary loses by a wide margin.
In numbers: a £12,570 salary costs the company £1,135.50 of employer NI and takes £13,705.50 off its taxable profit. Against paying no salary at all, that saves roughly £2,600 of corporation tax at 19% and roughly £3,600 at 26.5%. A director with no salary also wastes the whole £12,570 allowance, so every dividend is taxed from the first pound.
Is it always £12,570?
Usually, for a sole director. The dividend vs salary calculator tries every £100 of salary from zero to £60,000 at your own revenue and costs, and for most contractors it lands on the allowance. With very high profits the saving shrinks, and the sweep will show you that at your own figures.
Beyond the higher rate threshold, more salary is almost never better than dividends for a sole director.
When to go higher anyway
You might want more pensionable earnings on record, or a mortgage lender might want payslips showing a particular figure. Neither is a tax reason. Do it with the calculator open so you can see what the extra salary costs.
The Employment Allowance catch
The Employment Allowance for 2026/27 is £10,500 of employer NI that a company does not have to pay. A company whose only employee is its sole director cannot claim it, which is why the calculators here charge employer NI from £5,000 and do not net it off.
With two or more directors or employees, the company may qualify, and the employer NI on a £12,570 salary largely disappears. Salary then gets cheaper and the best figure may move. The calculators model one director, so if that is not you, treat the result as a floor and get an accountant to run it properly.
A salary paid to a spouse only counts if they genuinely do the work at a commercial rate. HMRC has seen the other version many times.