What is the most tax-efficient director's salary in 2026/27?

Most limited company directors pay themselves a small salary and distribute the remainder of the company’s profits as dividends.

As a company director, you set your salary level and decide when to declare company dividends.

In this guide, we reveal the most tax-efficient salary to pay directors during 2025/26.

A typoical director’s salary for 2026/27 will often be between £6,708 (minimal admin, still qualifying for State Pension) and £12,570 (maximum tax efficiency). For most contractors operating through a single-director company, £12,570 remains the popular level, with additional income taken as dividends.

Optimum salary for company directors in 2025/26 – key considerations

A number of factors influence the optimum salary level to pay yourself as a company director.

Do you have any other sources of income?

Do you have income from a second job or any other sources of income?

Tax-free personal allowance

The tax-free personal allowance is £12,570. There is no income tax to pay if your salary stays at or below this threshold.

The personal allowance is gradually eroded by £1 for every £2 you earn above £100,000 each tax year.

This means that if you earn £125,140, your entire personal allowance is forfeited.

Employers’ and employees’ national insurance

Your company pays 15% Employers’ NICs on salaries above the Secondary Threshold of £5,000/year.

The ‘Employment Allowance’ allows eligible businesses to reclaim up to £10,500 in Employers’ NICs.

With no other employees, you cannot claim the EA as a sole director.

As a company employee, you pay 8% Employees’ NICs on wages over the Primary Threshold (PT) and 2% on income above £50,270 per year.

You can check the latest NIC rates and thresholds here.

Entitlement to the State Pension

Check with The Pension Service to see if the level of NICs you pay will affect your state pension.

Paying yourself a salary below the Lower Earnings Limit (LEL) may affect your pension entitlement.

For 2026/27, the LEL is £6,708.

You can access a personal pension statement if you register online via the Government Gateway.

National Minimum Wage

If you have a contract of employment with your company (however unlikely this may be), you must pay yourself the National Minimum Wage, £12.71 per hour for adults aged 21 or over.

Pension contributions

You should also check with your accountant if a minimum salary is required if you contribute to a personal or executive pension scheme.

Are you caught by IR35?

This article assumes that your contract work is not caught by IR35.

Any income caught by IR35 is taxed as a deemed salary, subject to employment taxes.

What is a tax-efficient director’s salary in 2025/26?

Your optimal salary for the year is determined by the current tax rates and bands, and by whether your company can claim the Employment Allowance (EA).

This incentive cancels out the employers’ NIC liability of eligible businesses to encourage them to take on staff.

The rules changed in April 2016, so you cannot claim it if you are the sole director of a company (with no other employees).

Corporation Tax also increased from April 2023:

The first £50,000 of profits are still taxed at 19%.
Profits between £50,000 and £250,000 are taxed at 26.5%.
Profits over £250,000 are taxed at 25%.

As a result, any Corporation Tax savings mentioned below will be higher if your profits are above £50,000 for the tax year. In these examples, we assume your company pays CT at 19%.

a) £6,708 (tax efficient, limited paperwork)

For the 2026/7 tax year, if you pay a £6,708 director’s salary, you pay no income tax or Employees’ National Insurance.

Your company pays a small amount in Employers’ NICs on wages above the £5,000 Secondary Threshold.

£6,708 is a tax-efficient salary if your company cannot claim the EA. No employees’ NIC or Income Tax is payable.

To qualify for the state pension, you must pay your employees at least £6,708 per year (see above).

However, £12,570 is slightly more tax-efficient but involves more administration (see below).

b) £12,570 (optimum for single-director companies)

If you pay a director’s salary of £12,570, there is no income tax or Employees’ NI liability.

However, the company pays Employers’ NI on a salary above the £6,500 Secondary Threshold.

As salaries and employers’ NI are both tax-deductible, the company saves even more Corporation Tax compared with the £6,708 salary level.

This is the most tax-efficient salary for single-director companies. However, you may prefer the simplicity of a lower salary of £6,708.

c) £12,570 (if the company can claim the Employment Allowance)

If your company can claim the EA and pay each director/employee a salary of £12,570, there is no income tax to pay (as this is the same amount as the personal allowance).

Ordinarily, the company would have to pay Employers’ NICs of £1135.50.

However, the Employers’ NIC element is cancelled out by the Employment Allowance.

Also, by taking a £12,570 salary, the company saves over £1,000 in additional Corporation Tax compared to the £6,708 salary level (per employee).

So, £12,570 is the most tax-efficient director’s salary for the 2025/26 tax year if you can claim the EA.

What was the most tax-efficient director’s salary in 2026/7?

The optimum salary for 2026/7 was £12,570.

What was the most tax-efficient director’s salary in 2024/5?

The optimum salary for 2023/4 was also £12,570.

What was the most tax-efficient director’s salary in 2023/4?