Salary and dividends 2026/27: the best director salary and tax

The best director salary for 2026/27 is usually £12,570

For a single-director limited company in the 2026/27 tax year, a salary of £12,570 with the rest of the profit paid as dividends gives the highest take-home pay at most profit levels. £12,570 is both the Personal Allowance and the employee National Insurance primary threshold, so the salary itself carries no Income Tax and no employee NI.

The salary does cost the company employer NI of 15% on the part above £5,000, which is £1,135.50. That cost is worth paying because the salary and the employer NI are both deducted before Corporation Tax, which saves 19% or more. Dividends are paid from profit after Corporation Tax and cannot be deducted.

At £12,570 you keep £1,980.05 more than with no salary at all. Above £12,570, each extra £1 of salary is taxed at 20% and 8% NI, and that costs more than paying the same money as a dividend. Run your own figures through the salary vs dividends calculator, which searches every salary from £0 upwards and shows the one that leaves you with the most.

Dividend tax rates for 2026/27 went up by 2 percentage points

From 6 April 2026 dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. According to GOV.UK's table of Income Tax rates and allowances, the 2025/26 rates were 8.75% and 33.75%, so the ordinary and upper rates each rose by 2 percentage points. The additional rate did not change.

According to GOV.UK's tax on dividends page, "To work out your tax band, add your total dividend income to your other income." Your salary and any other income fill the bands first and dividends sit on top. The £500 allowance is taxed at 0% but still uses up £500 of band, so it can push later dividends into the higher rate.

The rise costs a director on the default figures £739.97 a year. With £60,000 of profit and a £12,570 salary, take-home falls from £46,831.17 in 2025/26 to £46,091.20 in 2026/27, because the same £36,998.54 of taxable dividends is taxed at 10.75% instead of 8.75%.

The National Insurance thresholds that set your salary choices

Four National Insurance thresholds decide where a director's salary should sit. According to HMRC's rates and thresholds for employers 2026 to 2027, they are unchanged from 2025/26 except the lower earnings limit, which rose from £6,500 to £6,708.

A salary between £6,708 and £12,570 costs you no National Insurance but still counts for the State Pension. According to GOV.UK, people earning from £129 to £242 a week from one job usually pay no NI, and "Your contributions are treated as having been paid to protect your National Insurance record." A salary below £6,708 does not give you that qualifying year.

Directors' NI is worked out over the whole tax year. According to HMRC's National Insurance Manual (NIM12001), a director's earnings period "is normally the year in which the earnings are paid", so you cannot avoid NI by taking the salary in one month. Our National Insurance rates guide covers every class.

Corporation Tax is 19% up to £50,000 and 25% from £250,000

Your company pays Corporation Tax at 19% on profits of £50,000 or less and 25% on profits of £250,000 or more. According to GOV.UK, profits in between pay the 25% main rate reduced by marginal relief, which is 3/200 of the gap between £250,000 and your profit. On £95,000 of profit that is £23,750 less £2,325, so £21,425.

The marginal rate inside the relief band is 26.5%. Each extra £1 of profit between £50,000 and £250,000 costs 26.5p in Corporation Tax, which is why salary and pension contributions save the most there. The limits are shared between associated companies: according to GOV.UK, "if your company has 3 other associated companies, the limits are divided by 4". The Corporation Tax calculator works out the relief on its own, and the salary vs dividends calculator includes it.

Worked example: £60,000 of profit and a £12,570 salary

On £60,000 of profit a director paying a £12,570 salary and taking the rest as dividends takes home £46,091.20 in 2026/27. These are the steps, with no Employment Allowance, no other income, in England:

1. Employer NI: (£12,570 minus £5,000) × 15% = £1,135.50.
2. Taxable profit: £60,000 minus £12,570 minus £1,135.50 = £46,294.50.
3. Corporation Tax at 19%: £8,795.96, leaving £37,498.54 to pay as dividends.
4. Your salary uses the whole £12,570 Personal Allowance, so there is no Income Tax and no employee NI on it.
5. Dividend tax: the first £500 at 0%, then £36,998.54 at 10.75% = £3,977.34.
6. Take-home: £12,570 + £37,498.54 minus £3,977.34 = £46,091.20, or £3,840.93 a month.

Total tax and NI come to £13,908.80, which is 23.2% of the £60,000 profit. Someone employed on a salary that costs an employer the same £60,000 would take home £41,196.53, so the mix keeps £4,894.67 more.

Worked example: £100,000 of profit and the higher rate

On £100,000 of profit the best salary is still £12,570, which leaves £65,209.63 after all taxes in 2026/27. Taxable profit is £86,294.50 after the salary and £1,135.50 of employer NI. Corporation Tax at 25% would be £21,573.63; marginal relief of £2,455.58 brings it to £19,118.04 (pennies are rounded once, at the end). That leaves £67,176.46 of dividends.

Dividend tax is £14,536.83: £500 at 0%, £37,200 at 10.75% (£3,999) and £29,476.46 at 35.75% (£10,537.83). A £5,000 salary instead would take home £64,456.96, which is £752.67 less.

Many directors stop at the higher rate. Taking only enough dividends to reach £50,270 of total income (£37,700 here) gives take-home of £46,271 this year and leaves £29,476.46 in the company. That money can be paid in a later year when your other income is lower, but it will be taxed when it comes out, and the calculator counts it at face value only. Profit kept in the company is not tax saved, it is tax delayed.

Salary only, dividends only or a mix: what you keep

A mix of a £12,570 salary and dividends beats both salary only and dividends only at every profit level in this table. Salary only means paying the whole profit as salary plus the employer NI on it, so there is no Corporation Tax but 15% employer NI, 8% employee NI and Income Tax. Dividends only wastes the Corporation Tax saving a salary gives.

The answer changes at high profits. Once your income passes £100,000 your Personal Allowance starts to shrink, and at £150,000 of profit the best salary drops to £5,000. Well above £250,000, a large salary that holds the company's taxable profit at £50,000 can beat dividends, because salary taxed at 45% plus 2% NI, even after 15% employer NI, keeps 46.1p of each £1 of profit, while 25% Corporation Tax followed by 39.35% dividend tax keeps 45.5p. The calculator finds these cases for you; above £100,000, read our guide to the £100,000 tax trap.

Employment Allowance can make a higher salary worth it

Employment Allowance cuts your company's employer NI bill by up to £10,500 a year, but a company whose only paid employee is its sole director cannot claim it. According to GOV.UK, "If your company has only one director, they must not be the only employee liable for secondary Class 1 National Insurance." A company with 2 directors on salaries above £5,000, or a director plus another employee, usually can.

When the allowance covers the employer NI, salary above £12,570 can beat dividends. With the allowance, salary up to £75,000 costs no employer NI (£5,000 plus £10,500 ÷ 15%). On £100,000 of profit, each extra £1 of salary between £50,270 and £75,000 keeps 58p after 40% tax and 2% NI. Paid as a dividend instead, the same £1 loses 26.5p in Corporation Tax and then 35.75% dividend tax, which keeps 47.2p.

If other employees already use some of the allowance, less is left for your salary. The allowance also cannot be used for anyone whose pay falls under the IR35 off-payroll rules, according to GOV.UK's eligibility page.

Scottish directors pay Scottish rates on salary and UK rates on dividends

If you live in Scotland, your salary and other non-savings income are taxed at Scottish rates, but your dividends are taxed at the same rates as the rest of the UK. According to GOV.UK, Scottish taxpayers "pay the same tax as the rest of the UK on dividends and savings interest". The 2026/27 Scottish bands run from 19% on income from £12,571 to £16,537 up to 48% over £125,140.

For a director on a £12,570 salary with no other income, the result is the same in Scotland and England because the salary is all covered by the Personal Allowance. The difference shows when you have other income: with £30,000 from a job elsewhere, a £12,570 salary adds £2,639.70 of Scottish Income Tax against £2,514 in England.

Company pension contributions avoid tax and NI

A pension contribution paid by your company is usually the cheapest way to take profit out. According to HMRC's Pensions Tax Manual (PTM024200), employer contributions to a registered pension scheme are not taxed as your earnings and are deducted as a business expense. HMRC's National Insurance Manual (NIM02716) says such a payment "is disregarded in the calculation of earnings for Class 1 NICs purposes".

The deduction must pass the "wholly and exclusively" test, and HMRC's Business Income Manual (BIM46035) says it is allowable unless there is a non-trade purpose. Contributions from you and your company together count towards the £60,000 annual allowance. You cannot spend the money until you can take your pension, so the calculator shows it separately from take-home pay.

Common mistakes when paying yourself salary and dividends

• Paying dividends without the profits to cover them. According to GOV.UK, "Your company must not pay out more in dividends than its available profits from current and previous financial years." Money taken without enough profit is not a lawful dividend, and you may have to treat it as a director's loan or pay it back.
• Using last year's dividend rates. Budgets built on 8.75% and 33.75% understate 2026/27 tax by 2p on every pound of taxable dividends.
• Claiming Employment Allowance as a sole director. The company is not eligible if you are its only employee paid above £5,000.
• Ignoring IR35. If a contract is inside IR35, the client or agency deducts tax and NI as if you were employed, and the salary and dividend split no longer applies to that income. Check with our IR35 calculator.
• Forgetting other income. A job elsewhere or rental income uses up your Personal Allowance and basic rate band first, which moves your best salary and pushes dividends into the higher rate.
• Paying a salary without running payroll. According to GOV.UK, a company must register as an employer to pay a salary, and report it to HMRC through payroll.
• Setting salary below £6,708 without thinking about the State Pension. A lower salary can save a little tax but loses the qualifying year that a salary from £6,708 gives.

This guide explains the rules; it is not tax advice. Check with an accountant before you set your pay, especially if you have more than one company, a spouse who is also a shareholder, or profits over £100,000.