If you run a UK limited company, how you pay yourself is one of the few financial decisions you control outright, and getting it right is worth thousands of pounds a year. The rules shifted for the 2026/27 tax year. Dividend tax went up, employer National Insurance sits at 15%, and the approach that worked two or three years ago now leaves money on the table.

This guide sets out the exact salary and dividend split for directors in 2026/27, with the maths for sole directors and for companies that have two or more people on the payroll.

The short answer: what salary should a director take in 2026/27?

For most limited company directors, the optimum gross salary for 2026/27 is £12,570 a year, which works out at £1,047.50 a month.

Paying yourself at this level does trigger an employer National Insurance bill, but the Corporation Tax relief your company claims on the salary and that NI is worth far more than the NI itself costs. The sections below show exactly why.

The 2026/27 thresholds that drive the decision

Every figure in this guide traces back to a handful of HMRC thresholds for the current tax year:

 

What changed for 2026/27

Two shifts matter this year.

First, dividend tax rose by 2 percentage points in the basic and higher bands from 6 April 2026. The basic rate moved from 8.75% to 10.75%, and the higher rate from 33.75% to 35.75%. The additional rate stayed put at 39.35%.

Second, employer National Insurance is charged at 15% on earnings above the £5,000 secondary threshold, the rate that came in from April 2025 and carries on this year.

Together these changes make the old “tiny salary, large dividend” pattern less efficient than it used to be, which is exactly why a 2026/27 review pays for itself.

Why £12,570 beats a smaller salary

Years ago, accountants often set a director’s salary right at the secondary threshold to sidestep employer NI altogether. With that threshold now down at £5,000, a £5,000 salary creates a real problem: it falls below the £6,708 Lower Earnings Limit, so you lose a qualifying year toward your State Pension.

Step up to £12,570 and three things line up:

1. You pay no employee National Insurance, because your earnings do not pass the £12,570 primary threshold.
2. You bank a qualifying year toward your State Pension.
3. Your company deducts the full £12,570, plus any employer NI it pays, against its Corporation Tax.

How much that deduction is worth depends on your company setup, so let’s run both common cases.

Scenario A: sole director, no Employment Allowance

If you are the only person on the payroll, your company cannot claim the Employment Allowance, so it pays the employer NI in full.

On a £12,570 salary, the employer NI is 15% of the £7,570 sitting above the £5,000 threshold, which comes to £1,135.50. That brings the total cost of employing yourself to £13,705.50.

That reads like a cost until you run it through the Corporation Tax return, where salary and employer NI are both allowable expenses. At the 19% small profits rate (profits under £50,000), the picture looks like this:

Item	How it is worked out	Amount
Gross salary	Your tax-free pay	£12,570.00
Employer NI	15% of pay above £5,000	£1,135.50
Total deduction	Salary plus NI	£13,705.50
Corporation Tax saved (19%)	£13,705.50 × 19%	£2,604.05
Net tax saving	CT saved minus NI paid	£1,468.55

 

So the salary costs £1,135.50 in NI but cuts the Corporation Tax bill by £2,604.05. On tax alone the company is £1,468.55 better off, and that is before you count the £12,570 you have drawn into your own pocket tax free.

If your profits land between £50,000 and £250,000, marginal relief pushes your effective Corporation Tax rate to 26.5% on profits in that band. At that rate the same deduction saves £3,631.96, and the net saving after employer NI climbs to roughly £2,500.

Scenario B: two or more directors or employees

If your company has at least two people earning above the £5,000 secondary threshold, say a director plus an employee, or two spouses who are both directors, it can usually claim the Employment Allowance. For 2026/27 this writes off up to **£10,500** of employer Class 1 NI.

The £1,135.50 NI bill on a £12,570 salary sits comfortably inside that allowance, so it disappears:

• Employee NI: £0
• Employer NI: £0, absorbed by the Employment Allowance
• Corporation Tax saved: £2,388.30 (19% of the £12,570 salary)

In a two-director company where both take £12,570, the combined employer NI of £2,271 is still wiped out by the single £10,500 allowance, and the company deducts both salaries in full. That is a Corporation Tax saving of **£4,776.60** in a single year, with no National Insurance to pay on either side.

One word of warning: a one-person company cannot claim the Employment Allowance, which is why Scenario A is the one that applies to most contractors and freelancers.

Taking the rest as dividends

Once the £12,570 salary is set, draw whatever income you actually need on top of it as dividends. Dividends carry no National Insurance, so they stay cheaper than extra salary even though they come out of post-Corporation Tax profit.

The 2026/27 dividend bands are:

• First £500:0%, covered by the Dividend Allowance
• Basic rate (total income up to £50,270): 10.75%
• Higher rate (£50,271 to £125,140): 35.75%
• Additional rate (above £125,140): 39.35%

Bear in mind that once your total income passes £100,000, your Personal Allowance tapers away by £1 for every £2 of income, so the maths changes at that level.

The blueprint: drawing income up to £50,270

A common target is to take income right up to the top of the basic rate band, £50,270, without tipping into higher rate tax. That splits as follows:

Salary: £12,570, covered by the Personal Allowance, so no tax
Dividends: £37,700, made up of £500 tax free under the Dividend Allowance and £37,200 taxed at 10.75%

The dividend tax comes to £37,200 × 10.75% = £3,999. You pay nothing on the salary and nothing on the first £500 of dividends, leaving a single £3,999 bill through Self Assessment.

That is around £744 more than the same split cost a year ago, purely down to the 2 point rate rise. Even so, it remains far cheaper than taking that £37,700 as extra salary, which would attract 20% Income Tax and employee NI on top.

When this split is not right for you

The £12,570 salary and dividend top-up suits most directors, but check these three situations before you copy it.

You have other income. If a rental property, a part-time job or a pension already uses up your £12,570 Personal Allowance, a £12,570 company salary would be taxed at 20%. A lower or nil salary often works better here.

You are applying for a mortgage. Lenders treat directors differently. Some look at salary plus your share of net profit, but many still assess you on salary plus dividends actually drawn, so deliberately keeping your personal income low can shrink how much you can borrow. If a mortgage is on the horizon, weigh that against the tax saving.

You are repaying a student loan. Dividends count as unearned income for student loan purposes. Once your total income passes the repayment threshold, your dividends feed into the calculation, so budget for it at the year end.

Get your split reviewed

Running payroll, tracking your director’s loan account, issuing dividend vouchers and minuting the decisions all take ongoing care. A missed payroll filing or an undocumented dividend can unpick otherwise sound planning.

Good limited company accountants keeps your salary and dividend split tuned month by month, so your Corporation Tax stays as low as the law allows and your take-home pay stays as high as possible.

Contact Target Accounting for a personalised profit extraction review for your limited company.

Frequently Asked Questions: 2026/27 Director Profit Extraction