Optimum Director Salary 2026/27: £12,570 vs £6,708 vs £5,000 Compared
Optimum director salary 2026/27 - £12,570 vs the £6,708 LEL vs £5,000, with and without Employment Allowance, worked through with dividends and Corporation Tax.
Quick answer for 2026/27
Employment Allowance claimable
£12,570
The £10,500 allowance covers the £1,135.50 employer NI. No Income Tax or employee NI on the salary if you have no other income.
Sole director, no other employee above £5,000
£12,570
No Employment Allowance. Employer NI £1,135.50, about £920 after 19% Corporation Tax relief. Still £463 better off than £5,000 on £50,000 of profit.
Key employer NI numbers
| Threshold | 2024/25 | 2026/27 |
|---|---|---|
| Secondary Threshold | £9,100 | £5,000 |
| Employer NI rate | 13.8% | 15% |
| Employment Allowance | £5,000 | £10,500 |
| Lower Earnings Limit | £6,396 | £6,708 |
The threshold cut and rate rise took effect in April 2025 (Autumn Budget 2024). For a sole director on £12,570, employer NI rose from £479 in 2024/25 to £1,135.50.
Same profit, three salaries
A company with £50,000 of profit before paying its director pays a salary and distributes everything left after Corporation Tax as dividends. Worked with our salary vs dividend calculator at 2026/27 rates; the director has no other income.
Sole director (no Employment Allowance)
| Salary | Employer NI | Corporation Tax | Dividends | Personal tax + NI | Director's net |
|---|---|---|---|---|---|
| £5,000 | £0 | £8,550 | £36,450 | £3,051 | £38,399 |
| £6,708 | £256 | £8,177 | £34,859 | £3,063 | £38,504 |
| £12,570 | £1,136 | £6,896 | £29,399 | £3,107 | £38,862 |
Employment Allowance claimable
| Salary | Employer NI | Corporation Tax | Dividends | Personal tax + NI | Director's net |
|---|---|---|---|---|---|
| £5,000 | £0 | £8,550 | £36,450 | £3,051 | £38,399 |
| £6,708 | £0 | £8,225 | £35,067 | £3,086 | £38,689 |
| £12,570 | £0 | £7,112 | £30,318 | £3,205 | £39,683 |
Salary is deductible for Corporation Tax and dividends are not, so each extra £1 of salary up to £12,570 saves more Corporation Tax than its employer NI costs. A £5,000 salary avoids employer NI but leaves the director £463 worse off as a sole director and gives no State Pension year. £6,708 earns the year, but is still £358 behind £12,570.
Lower Earnings Limit: don't pay below £6,708
Salaries from £6,708 (the LEL) up to £12,570 (the Primary Threshold) earn a State Pension qualifying year with no employee NI. Below £6,708 the year does not count. The full new State Pension is £241.30 a week in 2026/27, normally needing 35 qualifying years. A missing year can be bought with Class 3 voluntary NI at £956.80, unless you get NI credits for it another way.
For a sole director, moving from £5,000 to £6,708 costs £256 of employer NI on the £1,708 in between, about £208 after 19% Corporation Tax relief - far less than the £956.80 Class 3 price of the same year.
Related calculators and guides
- Salary vs dividend calculator - the engine behind the tables above.
- Dividend tax calculator - the dividend side of the salary + dividend split.
- Contractor calculator - full PSC take-home including IR35 status.
- Inside IR35 meaning - when the salary optimisation breaks down.
- Sole trader vs Limited Company - is the LTD setup even worth it?
- Max pension contribution calc - the pension third route alongside salary + dividend.
- Director pension strategies - SSAS, carry forward, employer contribution mechanics.
- Corporation Tax calculator - the company-side tax that funds the dividend.
- £100k tax trap - the PA-taper band to avoid.
Frequently asked questions
What is the optimum director salary for 2026/27?
For most owner-directors with no other income: £12,570, the Personal Allowance and Primary Threshold. It carries no Income Tax or employee NI, earns a State Pension qualifying year and is deductible for Corporation Tax. If the company can claim Employment Allowance, the £10,500 allowance covers the £1,135.50 employer NI. If it cannot (a sole director who is the only employee paid above the Secondary Threshold), the £1,135.50 employer NI costs about £920 after 19% Corporation Tax relief - but on £50,000 of profit the director still ends up £463 better off than on a £5,000 salary (table below). Do not go below the £6,708 Lower Earnings Limit, or the year does not count for State Pension.
Why can't solo directors claim the £10,500 Employment Allowance?
A company cannot qualify if all the earnings it pays in the year go to one employee who is a director (National Insurance Contributions Act 2014 s.2(4A), inserted from 6 April 2016 by SI 2016/344). HMRC's guidance puts it as: if your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance. So a second employee only helps if they are paid above the £5,000 Secondary Threshold. The job must be real and paid at least the National Minimum Wage for the hours worked.
What are the employer NI thresholds for 2026/27?
Secondary Threshold: £5,000 a year (it was £9,100 in 2024/25). Employer NI rate: 15% above it (13.8% in 2024/25). Employment Allowance: £10,500 a year (£5,000 in 2024/25); since April 2025 employers with more than £100,000 of Class 1 NI can claim it too. Apprenticeship Levy: 0.5% of a pay bill above £3,000,000, so not relevant to most owner-managed companies.
Will my salary qualify for a State Pension year?
Yes if it is at least the Lower Earnings Limit, £6,708 for 2026/27. A £12,570 salary qualifies; a £5,000 salary does not. Directors' NI is normally worked out on an annual earnings period (HMRC NIM12001), so it is the total for the year that counts. Buying the year instead with Class 3 voluntary NI costs £956.80 (£18.40 a week). The full new State Pension is £241.30 a week in 2026/27, normally needing 35 qualifying years.
Should I pay myself more than the Personal Allowance?
Usually not, for a basic-rate director at the small profits rate. Take £1,000 of company profit: paid as extra salary it has to cover 15% employer NI, leaving £870 of salary and £626 after 20% Income Tax and 8% employee NI. Paid as a dividend it first bears 19% Corporation Tax, leaving £810 and £723 after 10.75% dividend tax. Salary can still make sense for other reasons: personal pension contributions need relevant earnings (dividends are not earnings), and some lenders and benefit tests look at salary.
What if I have multiple directors / a spouse on payroll?
If two people are paid above the £5,000 Secondary Threshold, the company can usually claim Employment Allowance. Two salaries of £12,570 carry £2,271 of employer NI between them, all covered by the £10,500 allowance. If each also holds shares and takes dividends up to the £50,270 higher-rate threshold, that is £37,700 each, with £3,999 of dividend tax each after the £500 allowance (£7,998 together). The company needs enough profit after Corporation Tax to pay them. Shares given to a spouse must be an outright gift of ordinary shares, or the settlements rules can tax the dividends on the giver (HMRC TSEM4205).
What about pension contributions instead of dividends?
Employer pension contributions are a third route. They are normally deductible for Corporation Tax, are not taxed on the director and carry no NI, but they count towards the £60,000 annual allowance and the money is locked in until 55 (rising to 57 from 6 April 2028). Unused allowance from the previous 3 tax years can be carried forward if you were a scheme member in those years, so up to £240,000 could go in this year if nothing was paid in the last three and the taper does not apply. HMRC accepts the deduction where the whole remuneration package is comparable with what an unconnected employee doing similar work would get (BIM46035). See the maximum pension contribution calculator.
How do I run payroll as a director?
Register the company as an employer with HMRC before the first payday, then report each payment in a Full Payment Submission (FPS) on or before the day you pay. If you pay yourself once a year you can register as an annual scheme. HMRC can charge a monthly late-filing penalty (£100 for 1 to 9 employees), but not where the FPS is late but within 3 days of payday, or for the first failure in a tax year - that easement does not apply to annual schemes.
What about the £100k - £125,140 Personal Allowance taper?
Once adjusted net income (salary plus dividends plus other income) passes £100,000, the Personal Allowance falls by £1 for every £2, and is gone at £125,140. On dividends in that band the effective rate is about 53.6%: 35.75% on the dividend plus the same rate on the 50p of income the lost allowance exposes. Personal pension contributions reduce adjusted net income, though tax relief on them is limited to your earnings, which for most directors means salary. See the 100k tax trap page.
Does the optimum change if I'm IR35 caught?
Yes. Inside IR35 the engagement is taxed as employment income. Under Chapter 8 of Part 2 ITEPA 2003 (small private-sector clients) your company works out a deemed employment payment and pays employer NI on it. Under Chapter 10 (public-sector and medium or large clients) the client or agency that pays your company deducts PAYE and pays employer NI. Either way the salary-and-dividend split does not help on that income. Employer pension contributions and genuine business expenses still count. See the inside IR35 guide.
What about closing the company and taking it as CGT?
On a members' voluntary liquidation, distributions are normally capital, taxed at Capital Gains Tax rates. With Business Asset Disposal Relief (at least 5% of shares and votes, an officer or employee, and a trading company, for 2 years) the rate is 18% on up to £1 million of lifetime gains for disposals from 6 April 2026, after the £3,000 annual exempt amount. On profit taxed at 19% that is about 33.6% in total, against up to 50.9% as an additional-rate dividend. The distribution is taxed as income instead if you carry on a similar trade within 2 years and avoiding Income Tax was a main purpose (ITTOIA 2005 s.396B). A company struck off without a liquidator can treat distributions as capital only up to £25,000 in total (CTA 2010 s.1030A).
Does the answer change for personal service companies / single-owner contractors?
The salary calculation is the same, but: (1) IR35 can treat the income as employment income (see above); (2) a single-director company with no other employee paid above the Secondary Threshold cannot claim Employment Allowance; (3) shares held by a spouse are tested under the settlements rules - the House of Lords in Jones v Garnett (Arctic Systems) found an outright gift of ordinary shares to a spouse fell within the exemption (HMRC TSEM4205); (4) large employer pension contributions must pass the wholly and exclusively test (BIM46035). See the contractor calculator.