Director's Salary 2026/27 – What's the Most Tax-Efficient Salary?

Choosing the right salary as a company director can make a significant difference to the amount of tax you pay.

There isn't a one-size-fits-all answer. The most tax-efficient salary depends on factors such as whether you're the only employee, whether your company qualifies for Employment Allowance, your expected profits and whether you have other sources of income.

At Hiclass Accounting, we help limited company directors across the UK work out the most tax-efficient way to pay themselves, combining salary and dividends to minimise tax while ensuring they receive the benefits they're entitled to.

Director's Salary for 2026/27

For many directors, the optimum salary continues to be around the Personal Allowance of £12,570. However, recent changes to Employer's National Insurance mean that the right choice isn't always as straightforward as it used to be.

Key points for 2026/27

Employer's National Insurance remains at 15%.
The secondary threshold for Employer's National Insurance remains £5,000.
The Employment Allowance remains £10,500 for eligible businesses.
The Personal Allowance remains £12,570.
The dividend allowance remains £500.

If you're the only director with no employees

If you're the only person on the payroll, you won't normally qualify for Employment Allowance.

Many directors choose one of the following salary levels:

Salary of £12,570

Advantages

Uses your full Personal Allowance.
No Income Tax on your salary.
Counts as a qualifying year for your State Pension.
Corporation Tax relief is available on the salary.

Things to consider

Your company will pay Employer's National Insurance on part of this salary.

Salary of £6,500

A popular alternative that:

Avoids Income Tax.
Avoids Employee National Insurance.
Keeps Employer National Insurance relatively low.
Still provides a qualifying year for your State Pension.

Salary of £5,000

Some directors choose to keep their salary at £5,000 to avoid Employer's National Insurance altogether.

However, this level does not provide a qualifying year for your State Pension, so it's generally only suitable in certain circumstances.

If your company qualifies for Employment Allowance

If your company has employees or multiple directors and qualifies for Employment Allowance, paying a salary of £12,570 is often the most tax-efficient option because:

There is no Income Tax on the salary.
Employer's National Insurance is usually covered by the Employment Allowance.
The salary is deductible for Corporation Tax.
You receive a qualifying year for your State Pension.

Taking Dividends

Most directors take a combination of salary and dividends.

For 2026/27:

The first £500 of dividends is tax free.
Dividends above this are taxed according to your Income Tax band.

The right balance between salary and dividends depends on your company's profits, other income and future plans.

Which salary is right for you?

Although these figures are a useful guide, every business is different.

We always consider:

Your company profits.
Corporation Tax.
National Insurance.
Other income you receive.
Pension contributions.
Future tax planning.
Your eligibility for Employment Allowance.

A personalised calculation often saves directors far more than simply following a generic online guide.

Need help deciding?

At Hiclass Accounting, we support limited company directors throughout the UK with practical, straightforward advice.

Whether you're starting a new company or want to review how you're paying yourself, we'll calculate the most tax-efficient option for your circumstances and explain everything in plain English.

Book your free consultation today and let's make sure you're not paying more tax than you need to.