Optimum Directors’ Salary & Dividends 2026/27 💷 Beat the Tax Hike
- John Massey
- 3 days ago
- 2 min read
With the dividend tax rate set to rise by 2% in April 2026, getting your remuneration mix right is more critical than ever.
Small company owners traditionally pay themselves a low salary and the rest in dividends to minimize Income Tax and National Insurance. However, following the Autumn 2025 Budget, the traditional "low salary" model may no longer be the most tax-efficient strategy.
Here is the optimal salary and dividend mix for the 2026/27 tax year.
The Optimum Directors’ Salary: £12,570
For 2026/27, the optimal strategy for most directors is to increase their salary to £12,570 per year.
Although this salary level triggers National Insurance considerations, the Corporation Tax relief you gain on the higher salary outweighs the costs. The exact savings depend on your staff numbers:
Scenario A: You have employees (Employment Allowance Available)
If you have other employees, your company likely qualifies for the Employment Allowance. This wipes out the Employer National Insurance bill on your salary.
Result: You benefit from the full tax efficiency.
Total Savings: Up to £1,438 per Director.
Scenario B: You are the sole employee (No Employment Allowance)
If you are the sole director and employee, you cannot claim Employment Allowance. You will need to pay Employer National Insurance (approx. £1,136) via PAYE.
Result: Even after paying the NI, the Corporation Tax savings on the gross salary make this worthwhile.
Total Savings: You still save a net £518 in tax overall.
See the table below for a detailed comparison of the traditional low salary vs the new optimum salary strategies.
Dividend Tax Rates 2026/27 (The "Bad" News)
The big Autumn Budget news was that dividend tax rates are increasing by 2% across the board from April 2026.
New Dividend Tax Rates:
Basic Rate: 10.75% (up from 8.75%)
Higher Rate: 35.75% (up from 33.75%)
How much can you take?
Presuming you have no other sources of income, you can pay yourself dividends of up to £37,700 on top of your £12,570 salary before you hit the Higher Rate tax threshold.
The Cost of the Hike: If you pay dividends all the way up to the Basic Rate threshold:
Estimated Personal Tax Bill: ~£3,999
The Increase: This is £744 more than the previous year due to the rate rise.
Key Takeaways 📌
Personal circumstances vary. With the freeze on thresholds and the rise in rates, a "one-size-fits-all" approach is risky.
✅ The Sweet Spot: The optimal Directors' Salary for 2026/27 is £12,570.
💰 The Savings: Even after NI costs, this higher salary can save your company up to £1,438 in tax.
📈 The Tax Hike: Dividend tax rates are rising by 2% (to 10.75% basic / 35.75% higher).
Clients: You will shortly receive your personalized 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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