For most single-director companies the answer for 2026/27 is a salary of £12,570, with the rest taken as dividends. The figures behind that, and the cases where it changes, are below.
The 2026/27 rates
- Personal allowance: £12,570.
- Employee National Insurance: 8% above £12,570, 2% above £50,270.
- Employer National Insurance: 15% above £5,000.
- Lower earnings limit for state pension credit: £6,708.
- Dividend allowance: £500.
- Dividend tax: 10.75% basic rate, 35.75% higher rate, 39.35% additional rate. The basic and higher rates rose by 2 percentage points from 6 April 2026.
Why £12,570 rather than £5,000
A salary of £5,000 avoids employer National Insurance altogether. Going up to £12,570 costs the company £1,135.50 in employer National Insurance on the extra £7,570.
But the extra salary and the National Insurance are both deductible for corporation tax, and the director receives the £7,570 with no income tax or employee National Insurance. Taking the same money as a dividend instead means paying corporation tax on it first. On our figures the salary route leaves the director around £500 better off where the company pays 19% corporation tax, and around £1,000 better off at 25%.
There is a second reason. A salary below £6,708 does not earn a qualifying year for the state pension. £12,570 does, without any National Insurance being paid by the director.
When the answer changes
- You have other income. If a pension or another job already uses your personal allowance, a salary above £5,000 is taxed at 20% plus 8% National Insurance, and dividends usually come out ahead.
- The company can claim the Employment Allowance. Companies with employees other than a sole director can offset up to £10,500 of employer National Insurance a year, so £12,570 is clearly right. Most one-person companies cannot claim it. See our post on the Employment Allowance.
- The company is making a loss. The corporation tax saving disappears, so the case for the higher salary weakens.
Dividends on top
With a £12,570 salary, the next £500 of dividends is tax-free and dividends up to £50,270 of total income are taxed at 10.75%. A director taking £12,570 salary and £37,700 of dividends pays £3,999 in dividend tax.
Above £50,270 the rate jumps to 35.75%, so track your drawings through the year. Other thresholds to watch are the High Income Child Benefit Charge from £60,000 and the loss of the personal allowance from £100,000. Pension contributions paid by the company are often a better use of profit above these levels.
Dividends can only be paid out of profits available for distribution. See Illegal dividends: are you paying more than your company can?
Getting it right each year
We set directors' salaries each April alongside your personal tax, and run the payroll for you. See our payroll page or book a free call.
