Director Salary 2026/27: What Should a Limited Company Consider?

Director Salary 2026/27: what should a limited company consider?

There is no single ‘optimal director salary’ that works for every limited company. The right level depends on the director’s other income, National Insurance record, Corporation Tax position, dividend strategy, Employment Allowance eligibility and whether the director has an employment contract.

Key 2026/27 thresholds

• Personal Allowance for most taxpayers: £12,570, subject to the normal income-based restrictions.

• Lower Earnings Limit: £129 per week, equivalent to £6,708 over 52 weeks.

• Primary Threshold: £242 per week or £12,570 annually.

• Secondary Threshold: £96 per week, approximately £5,000 annually.

• Employer Class 1 National Insurance: 15% above the Secondary Threshold.

• Employee Class 1 National Insurance: 8% between the Primary Threshold and Upper Earnings Limit, then 2% above it.

Why the £5,000 Secondary Threshold matters

A salary above the Secondary Threshold can create employer National Insurance even where the director pays no employee National Insurance. For example, a salary of £12,570 produces no employee NIC for a director with a full annual Primary Threshold, but employer NIC can still arise on the amount above the £5,000 Secondary Threshold.

What about the Lower Earnings Limit?

A salary at or above the Lower Earnings Limit can help preserve a qualifying National Insurance record without employee NIC being charged at that level. However, employer NIC may still arise once earnings exceed the Secondary Threshold, so the State Pension benefit and the company tax cost need to be considered together.

Employment Allowance

Employment Allowance is £10,500 for 2026/27 for eligible employers. A company with only one director cannot claim it where that director is the only employee liable for secondary Class 1 National Insurance. If the company has another employee or director who also creates a secondary Class 1 liability, eligibility may change.

Is £12,570 always the best salary?

No. A salary of £12,570 may be attractive in some companies because salary and related employer costs can reduce company profits for Corporation Tax purposes, while the director may have no employee NIC at that level. But a sole-director company that cannot claim Employment Allowance faces employer NIC above £5,000. The Corporation Tax saving, employer NIC cost, dividend tax rates and the director’s wider income therefore need to be compared before deciding.

Directors and the National Minimum Wage

A company director acting only as an office holder is generally not a worker for National Minimum Wage purposes. If the director also works under an employment contract or another contract that makes them a worker, minimum wage rules can apply.

Practical approach

Before setting director pay for 2026/27, review the director’s personal income, National Insurance history, company profits, expected dividends, Employment Allowance eligibility and payroll obligations. Avoid copying a salary figure from an earlier tax year because the employer National Insurance thresholds and dividend rates have changed.

Official guidance: 2026/27 employer NIC rates and thresholds and Employment Allowance eligibility.

For PAYE processing, see Payroll Services Coventry. For wider director and company tax support, see Limited Company Accounting.