Optimum Directors’ Salary 2026/27 💷 Get it Right and Save Tax

Optimum Directors' Salary & Dividends 2026/27

Choosing the right salary for 2026/27 is worth doing carefully. The difference between the most and least efficient strategies can be over £1,800 per director.

In Brief

For most directors, the optimal salary for 2026/27 is £12,570 — the personal allowance. At this level, Corporation Tax relief on the salary outweighs any National Insurance cost, producing a net saving compared to the traditional low-salary baseline. How much you save depends on your company's structure and profit level.

In Detail

Why £12,570?

The traditional approach — taking a salary under both the tax and NI thresholds (currently around £5,000) with the balance in dividends — is rarely the most efficient strategy now. At £12,570, the gross salary qualifies for full Corporation Tax relief. For a company paying the small profits rate (19%), the relief is meaningful; for a company paying the main rate (25%), it is more so. The question is whether National Insurance offsets that benefit, and the answer depends on whether the Employment Allowance is available.

The Three Strategies

The table below compares the three practical approaches for 2026/27.

The strategies are:

• Strategy A — Baseline salary (£5,000): This is the starting point, not a recommendation. It carries no NI exposure but leaves substantial Corporation Tax relief unclaimed. It is rarely optimal.

  
  

• Strategy B — £12,570, sole director (no Employment Allowance): Where you are the only director and employee, the Employment Allowance is unavailable. Employer NI becomes payable on salary above the secondary threshold, which reduces — but does not eliminate — the benefit. The net saving over the baseline ranges from £463 to £1,116 (the higher saving requiring profits over £50,000).

  
  

• Strategy C — £12,570, two or more directors (Employment Allowance available): Where the Employment Allowance can be claimed, Employer NI on the director's salary is absorbed entirely. The saving is larger: £1,284 for lower-profit companies, rising to £1,851 where profits fall in the marginal relief band.

  
  

Profit level matters because Corporation Tax relief is worth more when marginal rates are higher. Companies with profits between £50,000 and £250,000 are subject to marginal relief, and it is these companies that benefit most from a higher salary deduction.

Companies with two or more directors

For companies with two or more directors — each director can adopt Strategy C independently. The combined saving for a small husband-and-wife company can reach +£3,700 in a single tax year. That is a meaningful figure, and one that is lost entirely if the salary is left at the traditional £5,000 level without review.

Dividends in 2026/27

Dividend tax rates are rising by 2 percentage points from April 2026. The new rates are 10.75% at the basic rate and 35.75% at the higher rate.

Assuming no other income, a director taking a salary of £12,570 can draw dividends of up to £37,700 before reaching the higher rate threshold. At that level, the estimated personal tax on dividends is approximately £3,999 — around £744 more than under the previous rates. That increase is unavoidable, but ensuring the salary level is correct at least offsets part of it.

Key Takeaways 📌

💷 The optimal directors' salary for 2026/27 is £12,570 for the majority of companies — not the traditional £5,000.

📊 The saving over the baseline ranges from £463 to £1,851 per director, depending on profit level and whether the Employment Allowance is available.

👫 For a husband-and-wife company where both directors adopt the optimal strategy, the combined annual saving can reach £3,702.

📈 Dividend tax rates are rising to 10.75% (basic rate) and 35.75% (higher rate) from April 2026 — a £744 increase at the basic rate threshold.

⚖️ The right strategy depends on your company's profit level and structure. The wrong choice is leaving the decision unmade.

If you are unsure which strategy applies to your company, take advice before the new tax year begins — the difference in outcome is too large to leave to default.

• Clients: You will shortly receive your personalised tax recommendation for the new year.

• Non-Clients: If you are worried about the new rates, feel free to get in touch for a review.

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