What is the optimal director salary in 2026/27?

In 2026/27, most accountants recommend one of two salary levels: £9,100 (the Secondary Threshold) to avoid all National Insurance entirely, or £12,570 (the Personal Allowance) which costs £520.50 in employer NI but is fully CT-deductible and allows more income outside the dividend route. For profitable small companies at 19% CT, £12,570 is marginally more efficient overall. For companies at 25% CT, the advantage of £12,570 is even clearer.

How much employer NI does a director pay on a £12,570 salary?

Employer NI in 2026/27 is 15% on salary above the Secondary Threshold (£9,100). On a £12,570 salary: 15% × (£12,570 − £9,100) = 15% × £3,470 = £520.50 employer NI. This is a company cost, not deducted from the director's pay. The director receives the full £12,570 with no income tax and no employee NI (salary at the Primary Threshold).

Should directors take salary or dividends for pension contributions?

A salary creates 'relevant earnings' that allow personal pension contributions. Dividends do not. However, the company can make employer pension contributions regardless of salary level — and these are CT-deductible and outside the NI system entirely. For many directors, a combination of low salary (for NI qualifying year) plus large employer pension contributions is the most efficient extraction method.

Can a director pay themselves only dividends with no salary?

Legally yes — there is no requirement for a director to receive a salary. However, taking zero salary risks losing NI qualifying years needed for the State Pension (35 years required for the full £11,502/year pension). It also eliminates any relevant earnings for personal pension contributions. Most advisers recommend a minimum salary of £6,396 (Lower Earnings Limit) to maintain a qualifying year at zero NI cost.

Director Salary vs Dividends 2026/27 — Optimal Pay Strategy

The two optimal salary levels for directors

For a sole director-shareholder of a UK limited company, there are two commonly recommended salary levels in 2026/27. Both avoid employee National Insurance entirely; the difference is whether the company pays employer NI:

Salary	Employee NI	Employer NI	NI qualifying year?	IT on salary
£9,100 (Secondary Threshold)	£0	£0	Yes (above LEL ~£6,396)	£0
£12,570 (Personal Allowance)	£0	£520.50	Yes	£0

At both levels, the director pays zero income tax (within the personal allowance) and zero employee NI (at or below the primary threshold £12,570). The key difference is the employer NI of £520.50 at the higher salary — which is a company cost but is CT-deductible.

2026/27 key thresholds: Secondary Threshold (employer NI starts): £9,100/yr. Primary Threshold (employee NI starts): £12,570/yr. Personal Allowance: £12,570. Employer NI rate: 15%.

Option A: £9,100 — no employer NI, zero NI cost

Taking a salary of exactly £9,100 (the Secondary Threshold) means:

No employer NI — the company pays no NI at all
No employee NI — the salary is below the primary threshold
No income tax — the salary is within the personal allowance
NI qualifying year confirmed — salary exceeds the Lower Earnings Limit (~£6,396)
Salary is fully CT-deductible — saves 19% CT = £1,729 (or 25% = £2,275)

Net company cost of £9,100 salary (19% CT company): £9,100 × (1 − 0.19) = £7,371 net company cost. Director receives £9,100 gross.

Option B: £12,570 — full personal allowance, small employer NI

Taking a salary of £12,570 (the Personal Allowance / Primary Threshold) means:

Employer NI: 15% × (£12,570 − £9,100) = 15% × £3,470 = £520.50
No employee NI — salary exactly at the primary threshold
No income tax — salary within personal allowance
Total company cost: £12,570 + £520.50 = £13,090.50
CT deduction on full cost: £13,090.50 × 19% = £2,487.20 (19% CT company)
Net company cost: £10,603.30
Director receives: £12,570 — an extra £3,470 vs the £9,100 option

Marginal analysis — the extra £3,470: Net company cost of the extra £3,470: £10,603.30 − £7,371 = £3,232.30. So the company spends £3,232.30 net to deliver £3,470 to the director — a 93.1% efficiency rate.

Compare to extracting that same £3,470 as dividends: company needs pre-CT profit of £3,470/0.81 = £4,284. After CT (£814), pays £3,470 dividend. Director pays 8.75% tax = £303.63, receives £3,166. Net director receipt: £3,166 for company cost of £4,284 (74% efficiency).

Conclusion for 19% CT companies: The £12,570 salary delivers £3,470 to the director at 93.1% efficiency, vs dividends delivering £3,166 at 74% efficiency. Salary wins clearly on this marginal slice — the CT deduction more than offsets the employer NI cost.

How the CT rate changes the answer

The optimal salary level depends on the company's corporation tax rate:

CT rate	CT saving on £12,570 salary+empl.NI	Net company cost	vs dividend route
19% (small profits)	£13,090.50 × 19% = £2,487	£10,603	£12,570 salary better than dividends
25% (main rate)	£13,090.50 × 25% = £3,273	£9,817	£12,570 salary clearly better
~26.5% (marginal relief)	£13,090.50 × 26.5% = £3,469	£9,621	£12,570 salary most efficient of all

As CT rates rise, the value of salary's CT deductibility increases, making the higher £12,570 salary more attractive relative to dividends. For companies in the marginal relief zone (profits £50k–£250k), the effective CT rate can reach 26.5% — at which point the CT saving on the salary nearly equals the employer NI cost entirely.

Caution for high-CT companies: If your company pays 25% CT and you are extracting income at the higher rate personally, the analysis becomes more complex. Model your specific position with an accountant — the crossover between salary and dividend efficiency shifts significantly at different CT rates and personal tax rates.

Worked example: £60,000 total extraction from a 19% CT company

Director wants to extract £60,000 from a company with sufficient distributable profit. Company CT rate: 19%.

Strategy: £12,570 salary + £47,430 dividends

Item	Amount
Director salary	£12,570
Employer NI (15% on £3,470)	£520.50
Company profit needed for dividends (post-CT)	£47,430
Pre-CT profit needed for dividends: £47,430/0.81	£58,556
CT on dividend profit	£11,126
Total company outlay	£12,570 + £520.50 + £58,556 = £71,646.50

Director receives	Tax paid by director	Net to director
Salary £12,570	£0 IT, £0 NI	£12,570
Dividends £47,430	£500 at 0%; £46,930 × 8.75% = £4,106 (all in basic rate: £47,430 + £12,570 = £60,000 ≤ £50,270... wait)	—

Note: total income = £12,570 (salary) + £47,430 (dividends) = £60,000. Basic rate band for dividends available: £50,270 − £12,570 = £37,700. Dividends in basic rate: £37,700 × 8.75% = £3,298.75. Dividends in higher rate: (£47,430 − £500 − £37,700) = £9,230 × 33.75% = £3,115.13. Total dividend tax: £6,413.88.

Summary	Amount
Director net income	£12,570 + £47,430 − £6,414 = £53,586
Total taxes (employer NI + CT + div IT)	£520.50 + £11,126 + £6,414 = £18,060.50
Effective rate on company gross outlay	£18,060.50 / £71,646.50 = 25.2%

For comparison, an equivalent PAYE employee earning £53,586 net would need gross pay of roughly £80,000+ to achieve the same take-home — the salary-dividend structure delivers significant savings.

Pension contributions: the third extraction option

Beyond salary and dividends, employer pension contributions represent one of the most tax-efficient ways to extract value from a limited company:

Employer pension contributions are CT-deductible (saving 19–25% CT)
No employer NI on pension contributions
No income tax or employee NI on contributions paid into the pension
Pension funds grow tax-free; 25% of the pot can be taken tax-free at retirement

For a 19% CT company, a £10,000 employer pension contribution costs the company only £8,100 net (after the CT saving). The director receives £10,000 into their pension — a 23.5% effective boost compared to taking cash.

Practical approach: Many directors operate on: low salary (£12,570) + employer pension contribution (maximise annual allowance £60,000) + remaining profit as dividends. This triple approach minimises NI, maximises CT deductions, and defers tax on pension growth — often the most efficient structure for high-earning directors.

The annual pension allowance is £60,000 (2026/27). Employer contributions from the company count toward this allowance. Unused allowances from the previous three years can be carried forward.

Frequently asked questions

For most profitable small companies (19% CT), the optimal salary is £12,570 — the Personal Allowance and Primary NI Threshold. This costs £520.50 in employer NI, but is fully CT-deductible and delivers more income to the director more efficiently than the same amount taken as dividends. For companies at 25% CT, £12,570 is even more clearly optimal.

Legally yes, but it is inadvisable. Taking zero salary means no NI qualifying years for the State Pension (worth £11,502/year for life). You also lose the ability to make large personal pension contributions. Most advisers recommend at least £6,396 salary (Lower Earnings Limit) to maintain qualifying years at zero NI cost, and £9,100 or £12,570 to optimise the salary-dividend split.

A director on £12,570 salary and dividends: the first £500 of dividends is tax-free (dividend allowance). Dividends up to the basic rate limit (total income ≤ £50,270) are taxed at 8.75%. Dividends that push total income above £50,270 are taxed at 33.75%. No NI is charged on any dividend income.

In most cases yes — for a director wanting to retain wealth within a pension. Employer pension contributions are CT-deductible with no NI, meaning a £10,000 contribution costs the company roughly £8,100 net (at 19% CT). The pension grows tax-free and 25% can be taken tax-free at retirement. The downside is that pension funds are inaccessible until at least age 57 (rising to 57 in 2028).