What is the Optimum Directors Salary 2026/27?

The optimum directors salary 2026/27 is £12,570 per annum. The reason for this is all down to the National Insurance (NI) rates.

The lower earnings limit for NI in 2026/27 is £6,708 per annum. If you earn over this amount it will count as a qualifying year for your future state pension.

The primary earnings limit for NI in 2026/27 is £12,570 per annum. If your annual salary exceeds this amount, then you the employee will need to pay NI contributions.

The secondary earnings limit for NI in 2026/27 is £5,000 per annum. If your annual salary exceeds this amount the employer (your business) will need to pay NI contributions.

The optimum in 2026/27 is to pay £12,570 but not a penny more. This ensures the taxpayer qualifies for the state pension but does not need to pay any employee contributions. Yes, you have read this correctly! You can qualify for a state pension without making any personal NI contributions.

The personal allowance and the primary NI threshold are now aligned. They are both now £12,570.

The employees NI threshold was increased to £12,570 in July 2022 and has remained at this threshold.

A company can pay a director (who is also a shareholder) through either salaries or dividends.

A salary paid is a tax deductible expense. The corporation tax rates from April 2026 remain at 19%, 25% and 26.5%.

A dividend paid is not a tax deductible expense for the company.

Therefore paying a salary of £12,570 to the director saves corporation tax of anywhere between £2,388 and £3,331. There is no such saving if dividends are paid.

Also, by paying a salary of £12,570 you are ensuring another qualifying year for the state pension is added.

The optimum directors salary 2026/27 should be £12,570 per annum only if the director has tax allowances available.

In situations, where the director has other income such as pension income, another salary, rental income, it may be advisable to pay a £nil salary. Also, if the individual is already at pension age and it is no longer important to have another qualifying year.

Under these circumstances, it is important to seek specialist tax advice, which we can offer. Getting the figures wrong may cost you thousands in extra taxes.

All taxpayers have personal allowances in which they can earn income tax free. As soon as these allowances are used up, tax rates are applied.

When income exceeds £12,570 per annum, both national insurance taxes and income taxes are applied.

The NI and income tax rates combined are higher than the dividend tax rate. Even when accounting for the corporation tax reduction on the salaries, paying dividends is still more tax efficient.

In some certain circumstances it may be advisable to pay in excess of the optimum directors salary.

Should the director have a contract of service they must legally be paid the national minimum hourly wage. This would typically be higher than the £12,570 per annum.

Dividends can only be paid out if the company has profit and loss reserves. If the company has made losses in the past it may not be possible to pay dividends. Higher salaries may be the only option.

There are a few rare circumstances in which higher salaries are more tax efficient. This is typically where the director is at pension age so doesn’t pay employees NI or there is some of the employment allowance available so the company doesn’t pay employers NI. Bespoke tax advice is required in these circumstances, which we provide to all of our clients.

In previous years it has been recommended to pay optimum salaries up to the secondary threshold. In 2026/27 this threshold is only £5,000 (It was £9,100 back in the 2024/25 tax year).

Paying up to the secondary rate avoids PAYE, employees NI and employers NI.

Our recommended optimum salary of £12,570 will be liable to employers NI but it saves more in corporation tax.
 
The extra employers NI totals £1,136 (calculation is £7,570 at 15.0%) but the corporation tax saved is at least £1,654. (calculation is £7,570 at 19% + £1,136 at 19%).
 
The corporation tax saved increases to £2,307 at the higher tax rate of 26.5%. (calculation is £7,570 at 26.5% + £1,136 at 26.5%).

The employment allowance allows a company to reduce their employers NI liability by up to £10,500 per annum.

Unfortunately the employment allowance is not available to all businesses. A company must have multiple directors or employees to be able to make the claim. See who can claim the employment allowance.

Should an employment allowance claim be available, then the employers NI of £1,136 would reduce down to £nil.
 
This increases the tax savings of paying an optimum directors salary of £12,570.
 
When compared to a salary of £5,000, the tax saved is between £1,438 and £2,006. (calculation is £7,570 at 19% or 26.5%).

Sole directors without any other employees don’t benefit from the employment allowance. This results in employers NI of £1,136 being payable.

The logical answer would therefore be to pay the lower salary of £5,000. This is below the secondary threshold so no employers NI is payable.

We don’t recommend this. The higher optimum directors salary of £12,570 saves corporation tax of at least £1,654, which increases to £2,307. (Depending on the corporation tax rate applied).

Sole directors should still pay themselves £1,047.50 per month.

This not only saves more in corporation tax but also ensures another qualifying year for the ‘pension stamp’ is achieved.

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There are two methods for calculating directors NI.
 
The first method takes the annual allowance of £5,000 and allocates £416 to each month. This means that with a salary of £1,047.50 a month the employers NI is payable in month 1. As a result, taxes would be payable to HMRC from the start of the tax year.
 
The second method is to use the annual calculation. The allowance of £5,000 is applied at the start of the tax year. It is only when the director receives over £5,000 that NI becomes payable. With a monthly salary of £1,047.50, this will occur at month 5.
 
In both methods the employers NI of £1,136 would be payable. The second method just delays the payments until half way through the tax year.

There were significant changes in the Halloween Budget 2024, which impact on sole director companies and the optimum directors salary.

The employer national insurance (NI) changes from April 2025, increases the NI tax liability from £479 to £1,136. An increase of £657.

One way a business could potentially avoid this increase is to employ an additional staff member, which would make the business eligible for the Employment Allowance.

Many sole-director companies rely on their partners (husbands, wives, boyfriends, girlfriends, etc) to assist with the administrative burden of running a business. This could be invoicing, chasing up debtors, paying suppliers, organising, personal assistant duties, bookkeeping – there are numerous roles which are currently often unpaid.

Paying a partner is the same as paying any other employee, so there are significant employee rights and regulations to consider. This isn’t a decision to be made lightly, but could be something to consider.

HMRC have provided guidance for single director companies and the employment allowance.

Typically, every year the income tax and NI thresholds change. As a consequence the optimum directors salary changes every tax year.
 
As the thresholds have remained the same, the optimum directors salary in 2025/26 was £12,570.

When directors pay themselves the optimum salary, the information must be filed with HMRC.

To do this, the business must register for PAYE. See our blog How to register as an employer for a step by step guide.

When income exceeds £12,570, dividends are more tax efficient than additional salaries. This is because the dividend tax rates are lower than PAYE / NI tax rates.

Clearly an annual salary of £12,570 is not high enough for most individuals to live off. The additional income is then paid to the director as dividends. We are assuming the director is also a shareholder.

After paying a salary of £12,570, the first £500 worth of dividends are tax free. This is the dividend allowance in 2026/27.

The director has therefore now earned £13,070 all of which is completely tax free.

The next £37,200 of dividends are taxed at 10.75%, (previous tax year 2025/26 was only 8.75%). This takes us up to the top level of basic rate, which is £50,270 for 2026/27.

Dividend tax rates for higher rate taxpayers are taxed at 35.75%, (previous tax year 2025/26 was only 33.75%).and for additional rate taxpayers it is 39.35%, (no change from previous tax year).