Your salary affects both the company tax bill and your personal tax. Keeping employer National Insurance as low as possible does not necessarily leave you with the most cash. Compare salary and dividends together, using the same company profit and personal circumstances.
The 2026/27 thresholds
| Threshold | Annual amount | What it means |
|---|---|---|
| Employer National Insurance secondary threshold | GBP 5,000 | Standard employer NI is 15% above this amount. |
| National Insurance Lower Earnings Limit | GBP 6,708 | Earnings at or above the relevant limit can protect your NI record even where no employee NI is payable. |
| Employee National Insurance primary threshold | GBP 12,570 | Standard category A employee NI is 8% above this, falling to 2% above GBP 50,270. |
| Standard Personal Allowance | GBP 12,570 | Reduces taxable income; it can be used by other income and tapers above GBP 100,000 adjusted net income. |
These figures assume a full tax-year directorship and the standard National Insurance category. Directors appointed during the year can have a shorter NI earnings period. State Pension entitlement depends on your whole contribution record, including other work and credits, so check that record rather than assuming one salary amount guarantees extra pension.
A sole director without Employment Allowance
Where the company has no other employees, Employment Allowance is not available. At a salary of GBP 5,000 there is no standard employer NI, but that salary alone is below the annual Lower Earnings Limit. At GBP 6,708, employer NI is GBP 256.20. At GBP 12,570 it is GBP 1,135.50.
Those employer costs do not settle which salary is best. Salary and employer NI can reduce taxable company profit, while dividends come from profits after Corporation Tax. Personal tax, the dividend allowance and the company tax bands can change the result. A salary above GBP 12,570 can sometimes produce more current cash, so it should not be ruled out by a fixed rule of thumb.
Our Owner-Manager Tax Index compares salary choices under stated assumptions. Use its figures for that comparison; your own position may also include other income, student loans, pension limits, associated companies or a different amount to leave in the business.
Where Employment Allowance is available
The allowance can offset up to GBP 10,500 of employer NI where the company qualifies. The single-director exclusion depends on who is liable for employer NI, not simply the number of names on payroll. Connected companies and other exclusions must also be checked.
For example, two employees each paid GBP 12,570 incur standard employer NI of GBP 2,271 in total. An eligible employer with enough allowance remaining can offset that amount. This does not establish the best salary for either person: compare the whole tax position and ensure the pay reflects genuine work.
How an annual PAYE scheme works
An annual Pay As You Earn (PAYE) scheme is available where employees are paid only once a year, all in the same tax month, and the employer pays HMRC annually. Register the arrangement with HMRC. Send the Full Payment Submission (FPS) on or before the actual payday, which does not have to fall at year-end.
An annual scheme normally removes the need for nil-payment Employer Payment Summaries in the other months. It does not allow monthly salary to be reported as though it was paid once. If payment arrangements change, update HMRC and send the required reports. Employees still employed at 5 April must receive their P60 by 31 May.
Pensions, borrowing and other income
A salary decision can have consequences beyond this year's tax. Personal pension tax relief depends on relevant UK earnings and other limits; dividends are not relevant earnings. Employer pension contributions have a different tax treatment. Review the contribution allowance and deductibility before paying.
If you are applying for a mortgage, check how the lender assesses salary, dividends and company profit. Student loans and other taxable income also belong in the comparison. Do not increase salary on the assumption that it automatically reduces student-loan repayments.
Before agreeing the salary
- Confirm expected company profit and the cash the business needs to retain.
- Check other income, allowances, student loans and the National Insurance record.
- Establish Employment Allowance eligibility and the amount available.
- Compare salary, dividends and any employer pension contribution using consistent assumptions.
- Set the actual pay dates and report them through payroll.
Director payroll questions
What salary should a sole director take in 2026/27?
There is no salary that gives the best result for every director. Compare company profit, employer National Insurance, Corporation Tax relief, personal tax, dividends, pension contributions and any other income. GBP 5,000 is the employer NI threshold, not a general optimum.
Can a company with one director claim Employment Allowance?
A company cannot claim where its only employee liable for secondary Class 1 National Insurance is a director. Paying another person above the secondary threshold may remove that exclusion, but the work must be real and the other eligibility rules still apply.
When can payroll be run annually?
An annual PAYE scheme is for employers whose employees are all paid once a year, in the same tax month, and who pay HMRC annually. Register the arrangement with HMRC and report the actual annual payday. Monthly salary payments still require the appropriate regular reporting.
Does a dividend-only company need PAYE registration?
Dividends do not themselves require PAYE registration, but salary, expenses, company benefits or other registration conditions can. A dividend does not create a National Insurance contribution record. Check any salary and your existing NI record before deciding how to pay yourself.
Official sources
Employer thresholds; National Insurance for directors; Employment Allowance; annual payroll schemes. Checked on 6 September 2026.