For 2026 to 2027 most owner directors choose between a salary of £5,000, £6,708 or £12,570. For a director with no other income, £12,570 usually leaves the most in hand even where the company has to pay employer National Insurance on it, because the salary and the National Insurance both reduce Corporation Tax. Where the company can claim the Employment Allowance, £12,570 wins by a wider margin.
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Which salary levels do directors usually compare for 2026 to 2027?
Three figures from HMRC’s rates and thresholds for employers for 2026 to 2027 drive the choice. Each has a different effect on the director, the company and the director’s National Insurance record.
| Annual salary | What the figure is | Employee National Insurance | Employer National Insurance (no Employment Allowance) | Counts towards State Pension? |
|---|---|---|---|---|
| £5,000 | Secondary threshold | None | None | No, it is below the lower earnings limit |
| £6,708 | Lower earnings limit | None | 15% of £1,708, which is £256.20 | Yes |
| £12,570 | Primary threshold and Personal Allowance | None | 15% of £7,570, which is £1,135.50 | Yes |
Directors are assessed on an annual earnings period, so these annual figures are the ones that count, whether the salary is paid monthly or in a single payment. If the director is appointed part way through the year, the thresholds are reduced pro rata, as explained in our guide to directors’ National Insurance.
What does the £5,000 secondary threshold change?
Employer National Insurance is charged at 15% on earnings above the secondary threshold, which is £5,000 a year for 2026 to 2027. Because that threshold sits well below both the lower earnings limit (£6,708) and the primary threshold (£12,570), any salary high enough to protect the director’s National Insurance record also creates an employer National Insurance bill, unless the Employment Allowance absorbs it.
That is why a salary of exactly £5,000 is sometimes suggested. It costs the company nothing beyond the salary itself, but it does not reach the lower earnings limit, so the year does not count towards the director’s State Pension through this job.
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Can the company use the Employment Allowance?
The Employment Allowance reduces an eligible employer’s Class 1 National Insurance bill by up to £10,500 a year. The restriction that affects most small companies is this: if the company has only one director, that director must not be the only employee liable for secondary Class 1 National Insurance. HMRC’s CWG2 guide puts it as companies with one employee paid above the secondary threshold where that employee is the director.
So a one person company paying only its director cannot claim. A company that also pays a member of staff above £5,000, or has two directors each paid above £5,000, can usually claim, subject to the other conditions such as only one company in a connected group claiming. Our guide to the Employment Allowance covers the full conditions.
How do the salary levels compare in practice?
Illustration only. A company makes £50,000 of profit before paying its director. The director lives in England, has no other income, and the company pays out everything left after Corporation Tax as a dividend. Profits stay under £50,000, so Corporation Tax is at the 19% small profits rate. Dividends above the £500 dividend allowance are taxed at the 2026 to 2027 ordinary rate of 10.75%. Figures are rounded to the nearest pound.
| Salary | Employer NI | Corporation Tax | Dividend | Dividend tax | Director keeps |
|---|---|---|---|---|---|
| £0 | £0 | £9,500 | £40,500 | £2,949 | £37,551 |
| £5,000 | £0 | £8,550 | £36,450 | £3,051 | £38,399 |
| £6,708 | £256 | £8,177 | £34,859 | £3,063 | £38,504 |
| £12,570 | £1,136 | £6,896 | £29,399 | £3,107 | £38,862 |
If the same company could claim the Employment Allowance, the employer National Insurance would be covered and the director would keep about £38,689 at £6,708 and about £39,683 at £12,570.
The reason £12,570 beats £6,708 even without the allowance is simple. Each extra pound of salary between those two figures costs the company £1.15 with employer National Insurance, but it saves Corporation Tax at 19%, so the after tax cost is about 93p. That 93p is all the company would otherwise have had available to pay as a dividend, while the salary itself arrives free of tax because it is covered by the Personal Allowance. At the 25% main rate, or in the marginal relief band, the advantage of salary up to £12,570 is larger, because the Corporation Tax saving is bigger. Our page on marginal relief explains how the rate between £50,000 and £250,000 of profit works.
Does the salary have to reach the lower earnings limit?
Not legally, but it decides whether the year helps the director’s State Pension. GOV.UK explains that an employee earning between £129 and £242 a week from one job usually pays no National Insurance but may still qualify for the State Pension, because contributions are treated as having been paid. For a director the annual equivalent is earnings of at least £6,708 in the year.
GOV.UK also lists company directors among those not entitled to the National Minimum Wage, so a low director salary is not in itself a minimum wage problem. It is still pay for an office, so it must be properly approved and run through PAYE.
When is a lower salary the better choice?
- The director has other income using the Personal Allowance. A director with a job elsewhere, a pension or substantial rental income will pay 20% Income Tax on the company salary. Each pound then costs £1.15 to deliver 80p, while the same profit paid as a dividend in the basic rate band leaves about 83p after 19% Corporation Tax and 10.75% dividend tax. A salary at the lower earnings limit, or at £5,000, is often better.
- The company has no taxable profit. Salary and employer National Insurance only save Corporation Tax if there are profits to set them against, now or later, so the advantage above can disappear in a loss year.
Being a Scottish taxpayer does not change the answer at these levels. Scottish Income Tax applies to wages, but salary up to £12,570 is still covered by the Personal Allowance, and dividends are taxed at the same rates as in the rest of the UK.
Above £12,570 the question becomes salary against dividends at the margin, which depends on the director’s tax band and the company’s Corporation Tax rate. That comparison is set out in salary or dividends: paying yourself as a director.
How should the salary be paid and reported?
The company must be registered as an employer and must report each payment to HMRC on a Full Payment Submission on or before the payday. On the submission, the director’s National Insurance method is shown as AN for the standard annual earnings period method or AL for the alternative method. Whether a one person company has to register at all is covered in does a sole director need to run payroll.
The salary should be approved in line with the company’s articles and recorded in the minutes. For the timing rules that decide when the pay counts as received for PAYE, see when a director’s pay counts as received.
What mistakes come up most often?
- Assuming a £12,570 salary carries no employer National Insurance. Since the secondary threshold is £5,000, it carries £1,135.50 unless the Employment Allowance applies.
- Claiming the Employment Allowance in a company whose only employee paid above £5,000 is its single director.
- Choosing £12,570 for a director whose Personal Allowance is already used by another job or pension.
- Setting the salary at £5,000 without realising the year will not count towards the State Pension.
- Applying monthly thresholds to a director without the end of year annual recalculation that the annual earnings period requires.
- Paying the salary by bank transfer with no payroll submission, which leaves the company with a PAYE failure to correct.
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Related Accountapedia entries
- The lower earnings limit and NI qualifying years
- Can a sole director company claim Employment Allowance
- Sole trader or limited company: the tax comparison
- Personal or employer pension contributions
- National Insurance classes explained
Related cover: Directors and officers liability insurance and Management liability insurance.
Sources
- GOV.UK: Rates and thresholds for employers 2026 to 2027
- GOV.UK: Employee directors
- GOV.UK: Ca44 national insurance for company directors
- GOV.UK: Claim employment allowance
- GOV.UK: Eligibility
- GOV.UK: 2026 to 2027 employer further guide to paye and national insurance con
- GOV.UK: Tax on dividends
- GOV.UK: Corporation tax rates
- GOV.UK: Income tax rates
- GOV.UK: National insurance
Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.