Optimal director salary for 2026/27

For a single-director Limited Company in 2026/27, three salary breakpoints matter: £0, £6,708 (the Lower Earnings Limit), £9,100 (the historical primary threshold), and £12,570 (the Personal Allowance). The optimal choice depends on whether the director has other income, whether the company qualifies for Employment Allowance, and whether the priority is cash take-home this year vs. national-insurance contribution credits for the State Pension.

The default answer: £12,570

For most solo directors with no other income, £12,570 is optimal. Here's why:

• The Personal Allowance is £12,570 in 2026/27 (frozen until 2030/31). Salary up to this amount is income-tax-free.
• The National Insurance employee primary threshold is also £12,570. Salary up to this amount is employee-NI-free.
• The employer secondary threshold is £5,000. Salary above this attracts employer NI at 15%. So salary of £12,570 generates (£12,570 − £5,000) × 15% = £1,135.50 in employer NI cost per year for the company.
• BUT salary is deductible from company profit before Corporation Tax. At the small-profits CT rate of 19%, the deduction saves the company (£12,570 + £1,135.50) × 19% = £2,604 in Corporation Tax.

Net effect: paying £12,570 in salary costs the company £13,705.50 (salary + employer NI), saves the company £2,604 in CT, and gets the director £12,570 personally with zero personal income tax or NI. Net cash advantage to the director: approximately £12,570.

If you instead took zero salary and all profit as dividends, the £12,570 you'd otherwise have received as PA-protected salary would instead come out as dividends — but dividends use up Personal Allowance, then are taxed at 10.75% (basic rate, post-April 2026). That's worse.

When £6,708 might be better

The £6,708 figure is the Lower Earnings Limit for NI — it's the floor below which you don't qualify for State Pension credit but pay no NI. Some directors choose £6,708 because:

• The company avoids the £1,135.50 in employer NI on salary between £5,000 and £12,570
• The director still gets a "qualifying year" of NI credit toward State Pension (the LEL is the threshold for credit)
• The remaining £5,862 of Personal Allowance gets used by dividends instead, taxed at 0% (PA) until exhausted

This is approximately neutral in cash take-home and is sometimes preferred for its simplicity (less PAYE administration). Run the director salary optimizer on your specific numbers to see the difference.

When £9,100 used to be the answer

The £9,100 figure was the employer NI secondary threshold before the April 2025 budget cut it to £5,000. Directors used to take £9,100 because:

• It was the maximum salary that triggered no employer NI
• It exceeded the LEL for State Pension credit
• It maximised the use of tax-deductible salary without incurring the employer NI cost

After the secondary threshold cut to £5,000 on 6 April 2025, this strategy lost most of its appeal. Salary above £5,000 now incurs employer NI immediately. £9,100 has no special meaning in 2026/27 — it's just an arbitrary historic figure.

When zero salary makes sense

The £0 salary strategy makes sense in only narrow cases:

• The director has significant other employment income that already uses the Personal Allowance and NI thresholds
• The Limited Company is loss-making (no Corporation Tax to save against)
• The director has no need for State Pension credit accrual

In these cases, taking £0 salary and all distributable profit as dividends is the cleanest route. The company saves the employer NI cost; the director's other income covers PA and NI thresholds.

Run your own numbers

The optimal director salary calculator compares all four breakpoints (£0, £6,708, £9,100, £12,570) at your specific company income level and shows the net annual take-home in each. For most readers it will confirm that £12,570 is correct — but if your situation is unusual, this is the fastest way to find out.

What about Employment Allowance?

The Employment Allowance is a £10,500 annual relief that some employers can claim against their employer NI bill. Single-director companies don't qualify unless they have at least one additional non-director employee paid above the secondary threshold. For most contractor Ltd companies — solo director, no employees — Employment Allowance is unavailable, and the math above stands.

If your company does qualify (e.g., spouse on the payroll above £5K), the calculus changes significantly. The first £10,500 of employer NI is wiped out, which means salaries up to approximately £75K become more attractive than dividend extraction at the same level. That's a more complex case worth a dedicated session with an accountant.