How to choose the right company director’s salary for 2026/27

This guide explains how to calculate the most tax-efficient salary level for limited company directors in 2026/27. Do you even need to pay yourself a salary?

Should you pay yourself a salary as a director?

Do you have to pay directors a salary? No, you don’t. However, there are compelling reasons to do so.

Firstly, it is tax efficient.

As a limited company director, paying yourself and any other directors an annual salary is one of the fundamental ways of extracting profit from the company.

Salaries are an allowable business expense and are deductible against the company’s Corporation Tax (CT) bill.

So, if a sole director company pays a salary of £12,570, for example, the salary itself will result in a Corporation Tax saving of £2,388.30 at the 19% small profits rate. The saving can be higher where profits fall within the marginal relief band.

Secondly, in order for any year to qualify for your State Pension, you will generally have to earn a salary at least equal to the prevailing Lower Earnings Limit (LEL). This is £6,708 in 2026/27.

Thirdly, although less usual, there may also be a legal obligation for the director to be paid a salary – either via a written contract, a shareholders’ agreement, or as specified in the company’s Articles of Association.

What factors determine the optimal director’s salary?

Corporation Tax rates increased in April 2023. If your company generates profits of £50,000 or more, the CT savings listed below could potentially be higher if your profits fall within the marginal relief band.

Various factors determine the most tax-efficient salary:

Income Tax personal allowance

The personal allowance – below which no income tax is payable – remains at £12,570. This applies to most taxpayers, though your entitlement may be lower for various reasons.

If you are a high earner and have adjusted net income over £100,000, your personal allowance is reduced by £1 for every £2 you earn above this threshold. There is an effective 60% income tax rate between £100,000 and £125,140.

Primary Threshold for NI (for employees)

This is the threshold above which Employees’ NICs are payable. This is £12,570 in 2026/27.

Secondary Threshold for NI (for employers)

This is the threshold above which Employers’ NICs are payable. For 2026/27, this is £5,000. Employers’ NICs are charged at 15% on earnings above this level.

Lower Earnings Limit (to qualify for the State Pension)

As we discussed earlier, you will earn credits towards the State Pension if your annual salary is at least the LEL, which for 2026/27 is £6,708. Try our LEL pension eligibility checker tool.

Eligibility to claim the Employment Allowance

If your limited company qualifies for the EA, it can offset Employers’ NI liabilities – up to a maximum allowance of £10,500.

A company cannot claim the EA where a single director is the only employee liable for Employers’ NI. However, a company with two directors or other employees earning above the Secondary Threshold may be able to claim. Find out more in our Employment Allowance guide.

What is the most tax-efficient salary strategy for 2026/27?

Considering the current tax thresholds listed above, the optimum salary for a director is ultimately determined by the company’s eligibility to claim the EA; if it is eligible, the Employers’ NI costs can be offset by the allowance.

Option 1 – £6,708 (company can’t claim the EA)

This is a popular option for companies that aren’t eligible to claim the EA. At this level, there are no income tax or Employees’ NI liabilities, but the company has to pay £256.20 in Employers’ NI (15% of salary over £5,000).

This counts as a qualifying year towards the State Pension.

Option 2 – £12,570 (company can’t claim the EA)

If you own a one-man limited company, or cannot claim the EA for any other reason, the most tax-efficient salary for 2026/27 is £12,570 in many typical cases. No income tax or Employees’ NICs are payable, assuming the full Personal Allowance is available, but there is an Employer’s NIC liability of £1,135.50.

As a result of CT savings, the company and director will be around £400 better off than if it paid a £6,708 salary at the 19% Corporation Tax rate, with a greater saving possible where profits fall within the marginal relief band.

Option 3 – £12,570 (company can claim the EA)

If your company can claim the EA, the most tax-efficient salary for 2026/27 is £12,570 in many typical cases. No income tax is payable, assuming the full Personal Allowance is available, and the Employer’s NIC bill can be offset by the EA. The employee does not have to pay any Employee’s NIC.

Compared with a £6,708 salary, the additional £5,862 of salary produces approximately £1,114 of extra Corporation Tax relief at the 19% rate, assuming the Employment Allowance covers the Employer’s NIC at both salary levels. The saving can be higher where the company is within the Corporation Tax marginal relief band.

Use our salary and dividends calculator to find out your tax liability.