If you’re a limited company director, the question of how much salary to take is one you’ll come back to every April.
Take too little and you leave corporation tax relief on the table. Take too much and you pay more National Insurance than you need to. The right number depends on three things: your company’s profit, whether you can claim the Employment Allowance, and how you plan to top up the rest of your income.
In 2026/27, three salary levels make practical sense for most directors.
We’ll walk you through each one with the actual numbers, the pros and cons, and the question that decides which is right for you.
The Three Practical Salary Levels
Picking a director’s salary isn’t a free choice across every pound. There are specific thresholds in the tax system that change what happens when you cross them. The three salaries that line up with those thresholds in 2026/27 are:
- £5,000: The Secondary Threshold for employer National Insurance. No employer NI below this point.
- £6,708: The Lower Earnings Limit. The lowest salary that earns you a qualifying year for the State Pension.
- £12,570: The Personal Allowance. The highest salary you can take without paying any income tax personally.
Other figures between these thresholds don’t usually unlock a new NI or income tax threshold, although they may still be chosen for cashflow, mortgage evidence or wider tax planning. For most directors, the meaningful choice is between £5,000, £6,708 and £12,570.
Option 1: £5,000 Salary
At the Secondary Threshold, your company pays no employer NI on your salary. The numbers at the 19% corporation tax rate look like this:
| Item | Amount |
|---|---|
| Gross salary | £5,000 |
| Employer NI | £0 |
| Corporation tax relief at 19% | £950 |
| Net cost to the company | £4,050 |
| Net to you (no personal tax or NI) | £5,000 |
Pros:
- No employer NI: The salary is at the Secondary Threshold so nothing is owed.
- Simple cashflow: Predictable monthly cost with no NI calculations.
- No employee NI or income tax: You take the full £5,000 home.
- Fits where Employment Allowance isn’t available: Useful for sole-director companies that can’t claim EA.
Cons:
- Doesn’t earn a State Pension year: Falls below the £6,708 Lower Earnings Limit.
- Most of your Personal Allowance goes unused: £7,570 of tax-free income wasted.
- Less corporation tax relief than the higher options: A bigger salary would reduce the company’s tax bill more.
- Mortgage applications: Some lenders prefer a higher regular salary, although many also factor in dividends and company accounts.
Option 2: £6,708 Salary
The Lower Earnings Limit is the lowest salary that counts as a qualifying year for the State Pension. For directors who don’t have other employment building up qualifying years, this matters – missing a year now can cost you in retirement.
At £6,708, the numbers look like this:
| Item | Amount |
|---|---|
| Gross salary | £6,708 |
| Employer NI (£1,708 × 15%) | £256.20 |
| Corporation tax relief at 19% | £1,323 |
| Net cost to the company | £5,641 |
| Net to you (no personal tax or NI) | £6,708 |
Pros:
- Earns a State Pension year: Critical if your company is your main source of NI contributions.
- Modest employer NI cost: £256 a year is manageable for most companies.
- No personal tax or NI: Your full £6,708 lands in your bank account.
- Slightly more corporation tax relief than £5,000: The bigger deductible expense reduces CT.
Cons:
- Some employer NI to pay: Where Employment Allowance isn’t available, this is a real cost.
- Personal Allowance still mostly unused: £5,862 of tax-free income remains on the table.
- Limited gain over £5,000 at the small profits rate: Without EA, the additional CT relief at 19% is roughly £325, partly offset by the £256 of NI.
Option 3: £12,570 Salary
This is the standard recommendation for most directors who can claim the Employment Allowance.
At £12,570 you use your full Personal Allowance and produce the most corporation tax relief of the three options.
The numbers depend on whether Employment Allowance covers the employer NI:
| Item | With EA | Without EA |
|---|---|---|
| Gross salary | £12,570 | £12,570 |
| Employer NI (£7,570 × 15%) | £1,135.50 | £1,135.50 |
| EA covers employer NI | -£1,135.50 | £0 |
| Corporation tax relief at 19% | £2,604 | £2,604 |
| Net cost to the company | £9,966 | £11,102 |
| Net to you (no personal tax or NI) | £12,570 | £12,570 |
For companies that qualify for the Employment Allowance, the £1,135.50 of employer NI disappears entirely. For companies that don’t qualify, that NI is a real cost.
Whether £12,570 still produces the best overall result depends on the corporation tax rate, the dividend tax rate, other income and whether the director needs a qualifying NI year.
Pros:
- Maximum corporation tax relief: The bigger salary is a bigger deductible expense.
- Full Personal Allowance used: £12,570 of income is tax-free at the personal level.
- State Pension year earned: Comfortably above the LEL.
- Better for mortgage evidence: A higher consistent salary can support some lender assessments.
Cons:
- Employer NI of £1,135.50: Only neutral if Employment Allowance is available.
- Higher fixed monthly cost: Less flexibility than a smaller salary topped up by dividends.
- Uses some of your Employment Allowance: Worth tracking if you have other employees on payroll.
For a deeper look at this option – including worked examples at different profit levels and the family income-splitting strategies that go with it – see our optimal director’s salary guide for 2026/27.
Employment Allowance: The Decisive Factor
The Employment Allowance is the question that often decides between these three options. It lets eligible employers reduce their employer National Insurance bill by up to £10,500 a year. For a £12,570 salary, the £1,135.50 of employer NI sits well within the allowance, meaning it disappears entirely.
The catch is who can claim it.
A limited company cannot claim the Employment Allowance if it has only one director and that director is the only employee liable for secondary Class 1 National Insurance.
In practice, that means a sole-director company with no other employees above the Secondary Threshold will usually be excluded. HMRC’s further guidance for single-director companies covers this in more detail.
A company may be able to claim if it has at least one of:
- A second paid director earning above the Secondary Threshold: The classic husband-and-wife setup.
- A genuine non-director employee earning above the Secondary Threshold: Family members or part-time staff can qualify if they’re properly employed.
- Two or more directors paid above the Secondary Threshold: Common in larger family companies.
Other restrictions can apply, including connected company rules (only one company in a connected group can claim) and limits on public-sector work. Eligibility should be checked before claiming.
If you qualify for Employment Allowance and have your Personal Allowance available, £12,570 is usually the strongest starting point.
If you don’t qualify, £5,000 and £6,708 are useful low-cost options, but £12,570 can still be tax-efficient once corporation tax relief, employer NI and dividend tax are compared together.
Topping Up With Dividends
Whichever salary you pick, the rest of your income normally comes as dividends. Dividends sidestep National Insurance entirely but don’t reduce corporation tax. Personal tax on dividends in 2026/27 is:
- Basic rate: 10.75% (up from 8.75% in 2025/26)
- Higher rate: 35.75% (up from 33.75% in 2025/26)
- Additional rate: 39.35% (unchanged)
The first £500 is covered by the dividend allowance. The basic and higher rates rose by two percentage points in April 2026, narrowing the gap between salary and dividends.
The combination still saves several thousand pounds a year over taking everything as PAYE for most directors – but the planning is tighter than it used to be.
Timing Your Dividends Across Tax Years
If your total income is on track to push you into the higher rate band (£50,270), there’s a useful planning option: defer dividends into the next tax year.
Say your projected income for 2026/27 is £60,000:
- Salary: £12,570
- Dividends: £47,430
The first slice of dividends fits in the basic rate band. The rest spills into the higher rate band, where the tax rate jumps from 10.75% to 35.75%.
| Item | Amount | Dividend tax rate | Tax |
|---|---|---|---|
| Salary | £12,570 | n/a | £0 |
| Dividends within basic rate band | £37,700 | 10.75% (after £500 allowance) | £3,999 |
| Dividends in higher rate band | £9,730 | 35.75% | £3,478 |
The £9,730 slice in the higher band costs £3,478 in tax. If it had stayed inside the basic rate band, it would have cost £1,046 – an extra £2,432 of tax purely because of where the boundary falls.
Deferring £10,000 of dividends into 2027/28 brings the current-year total to £50,000 – fully within the basic rate band. The cash sits in the company until you draw it next year, and the higher dividend rate only kicks in if 2027/28 takes you back over £50,270.
Three things to watch when timing dividends:
- Distributable reserves: Dividends can only be paid from accumulated realised profits. Check the position at the date of declaration, not at year-end.
- Documentation: Each declaration needs a dated board minute and a dividend voucher. Poor paperwork or dividends paid without sufficient reserves can create Companies Act and tax problems.
- Other income: Bonuses, rental income or savings interest can change your projections, so review the full picture before deferring.
How Double Point Can Help
The right director’s salary depends on whether you can claim the Employment Allowance, your company’s profit level, your other income, and how much you want to draw in dividends.
The examples above assume the director has the full UK Personal Allowance available and no other income using it. Scottish income tax bands differ, although the Personal Allowance is the same UK-wide.
At Double Point, our chartered accountants offer tax planning for limited company directors across the UK, building remuneration plans tailored to each company’s exact position and reviewing them every year as the rules change.
Book a free consultation and we’ll work out which salary level makes most sense for you in 2026/27.
Disclaimer: This guide is for general information only and does not constitute tax, accounting or financial advice. Director salary planning depends on your company’s profits, Employment Allowance eligibility, other income, pension position and personal circumstances. Tax rules and rates can change, so you should take professional advice before acting.