Tax year: 2026/27 — 6 April 2026 to 5 April 2027. Reviewed 6 October 2026.
There is no single director salary that is best for every company. The right amount depends on personal income, the company’s tax position, payroll costs and the wider plan for drawing money. Copying a figure from an older tax-year video can overlook changes to employer National Insurance.
The thresholds serve different purposes
For 2026/27, the standard Personal Allowance and annual employee NI primary threshold are £12,570. The annual lower earnings limit is £6,708, while the ordinary employer NI secondary threshold is £5,000. The ordinary employer rate above that threshold is 15%.
These limits are not interchangeable. A salary with no employee NI can still create employer NI for the company. Directors’ contribution calculations and appointment dates also need the correct payroll treatment.
What does a £12,570 salary cost?
As a simple full-year illustration under the ordinary employer rules, £12,570 salary creates £1,135.50 employer NI before any applicable relief: (£12,570 − £5,000) × 15%. The company’s cash outlay is therefore £13,705.50.
Whether this is preferable to a lower salary requires a comparison including corporation tax treatment and the alternative use of the same company funds. It is not enough to compare salary and dividend personal tax rates in isolation.
Can Employment Allowance cover the charge?
Eligible employers can receive up to £10,500 Employment Allowance in 2026/27. A company with only one director cannot claim where that director is the only employee liable for secondary Class 1 NI. Other eligibility conditions still matter; simply employing someone does not automatically establish entitlement.
Review the actual payroll and circumstances before assuming the allowance removes the director’s employer NI cost.
What changes if you have other income?
Another job, rental profit or pension income can already use your Personal Allowance. A salary that is tax-free for one director may be taxable for another. Your tax code and total annual position should both be checked.
A lower salary can also have different consequences for the contribution record. Check existing employment and credits rather than assuming every director needs the same additional qualifying year.
Keep salary and dividends properly recorded
Salary should follow the relevant payroll and reporting requirements. Dividends require their own profit checks and documentation. Moving money from the company without deciding its correct treatment can leave an overdrawn director’s loan account.
For a related explanation, read our updated 2026/27 dividend planning guide.
What to bring to a salary review
- Expected company profit and available cash.
- All personal income and current tax codes.
- The payroll’s Employment Allowance position.
- Your cash needs and proposed dividends.
- Any pension contributions or other benefits to review.
Try our salary and dividend calculator for an initial comparison. For help reviewing the assumptions, see director tax return support or book a consultation.
General guidance, not a personal salary recommendation. Sources: HMRC 2026/27 employer rates and Employment Allowance eligibility.
Talk it through with Digivolve
We set director salaries every year alongside the dividend plan, and run payroll so the RTI filings are done for you.