The Most Tax-Efficient Salary Level for Directors in the 2026/27 Tax Year Explained

Published: 16th March 2026

Many directors wonder what salary level makes the most sense from a tax perspective. For the 2026/27 tax year, the answer remains largely the same as previous years, but the reasoning has some nuances depending on your company’s situation. This post breaks down the key points to help directors decide the most tax-efficient salary to pay themselves.

Why £12,570 Is Still the Sweet Spot for Most Directors

For most directors, paying themselves a salary of £12,570 remains the most tax-efficient choice. This figure matches the Personal Allowance for income tax, meaning no income tax is due on this amount. But the benefits go beyond just avoiding income tax.

At this salary level, directors also:

• Earn National Insurance credits that count towards their state pension.

• Trigger employer National Insurance contributions (NICs) if the company cannot claim Employment Allowance.

• Benefit from a corporation tax deduction on the salary paid, which reduces the company’s taxable profits.

  
  

Let’s explore these points in more detail, starting with companies that have only one director and no other employees.

Companies with One Director and No Other Employees

In this scenario, the company cannot claim Employment Allowance. This means employer National Insurance contributions apply once the salary exceeds the employer NI threshold.

What happens at £12,570 salary?

• No income tax is due because the salary equals the Personal Allowance.

• National Insurance credits are secured, which help build state pension entitlement.

• Employer National Insurance is payable on the amount above the employer threshold.

  
  

Here’s a rough example to illustrate the numbers:

Item	Calculation	Amount (£)
Director salary		12,570
Employer NI threshold		5,000
NI-able pay	2,570 − 5,000	7,570
Employer NI at 15%	7,570 × 15%	1,135.50
Corporation tax saving at 19%	12,570 × 19%	2,388.30
Net overall tax benefit	2,388.30 − 1,135.50	1,252.80

Even after paying employer National Insurance, the company saves more in corporation tax than it pays in NICs, resulting in a net tax benefit.

Companies with Two or More Directors or Employees

When a company has multiple directors or other employees, it can claim Employment Allowance. This allowance offsets employer National Insurance contributions up to a certain limit.

How does this affect the salary decision?

• A salary of £12,570 can be paid without any employer National Insurance cost because the Employment Allowance covers it.

• The company still benefits from the corporation tax deduction on the salary.

• The director receives National Insurance credits towards their state pension.

• No income tax is due on this salary due to the Personal Allowance.

  
  

This situation makes the £12,570 salary even more attractive because the company avoids employer NICs entirely while still gaining the corporation tax benefit.

Calculating the most tax-efficient salary for directors in the 2026/27 tax year

A Simpler Option Some Directors Choose

Some directors prefer to avoid the complexity of managing employer National Insurance contributions and Employment Allowance. They may opt to pay themselves a salary at or just above the National Insurance primary threshold (around £12,570) and take the rest of their income as dividends.

This approach:

• Keeps the salary simple and within the Personal Allowance.

• Minimizes employer NICs where possible.

• Allows dividends to be paid, which are taxed differently and often at a lower rate.

  
  

While this method may not maximize every penny of tax efficiency, it reduces administrative hassle and keeps payroll straightforward.

Key Takeaways for Directors Planning Their Salary in 2026/27

• £12,570 remains the optimal salary for most directors because it matches the Personal Allowance, avoiding income tax.

• For companies without Employment Allowance, employer NICs apply above the threshold, but the corporation tax saving outweighs this cost.

• For companies with Employment Allowance, employer NICs can be fully offset, making £12,570 salary even more tax-efficient.

• Directors should consider their company’s Employment Allowance eligibility when deciding salary levels.

• Taking dividends alongside a £12,570 salary can simplify tax planning but should be balanced with personal and company circumstances.

  
  

Directors should review their specific situation each year, as thresholds and allowances can change. Consulting with a tax professional can help tailor the best salary strategy for your company and personal finances.