How to Set Your Director's Salary in 2026/27 to Hit the NIC Sweet Spot

Every UK owner managed company asks the same question in April: what should I pay myself as a salary, and what should I take as dividends. The answer changed in April 2025, when employer National Insurance went up and the secondary threshold dropped to £5,000. For the 2026/27 tax year, the maths is different again, and the old £12,570 default no longer works for everyone.

There are three salary levels that make sense for a typical owner director. Picking between them depends on whether you have another employee on payroll, and whether you can use the Employment Allowance.

The three numbers that drive the decision

For 2026/27, the relevant thresholds are:

1. Lower earnings limit, £6,500 a year. Salary above this level counts as a qualifying year for the state pension, even though no NIC is paid.
2. Secondary threshold, £5,000 a year. Above this, employer NIC of 15 percent applies.
3. Primary threshold and personal allowance, £12,570 a year. Above this, employee NIC of 8 percent and income tax apply.
4. Employment Allowance, £10,500 a year, available to most employers but not to single director companies with no other employees on payroll above the secondary threshold.

Those four numbers, and one yes or no question, decide your salary.

Option one: the single director, no Employment Allowance route

If you are the only person on payroll, you cannot claim the Employment Allowance. Every pound of salary above £5,000 costs the company 15 percent in employer NIC.

The sweet spot here is a salary of £6,500 a year, equal to the lower earnings limit. You pay no income tax, no employee NIC, and a small amount of employer NIC, which is 15 percent of £1,500, or £225. In return, the year counts towards your state pension, and the full £6,500 is deductible against corporation tax.

At a 19 percent corporation tax rate, the £6,725 total cost saves £1,278 in corporation tax, leaving a net cost of £5,447 for £6,500 in your pocket. At 25 percent, the saving rises to £1,681, leaving a net cost of £5,044.

Going higher than £6,500 in a single director setup is rarely worth it. Every extra pound triggers 15 percent employer NIC and, once you cross £12,570, employee NIC and income tax. The corporation tax saving does not catch up.

Option two: the multi person payroll, Employment Allowance route

If you have at least one other employee on payroll above the secondary threshold, you can almost certainly claim the Employment Allowance, which wipes out the first £10,500 of employer NIC. That changes the calculation.

The sweet spot here is a salary of £12,570 a year, equal to the personal allowance. The employer NIC on the salary above £5,000 is 15 percent of £7,570, or £1,135.50, fully covered by the Employment Allowance assuming you have headroom. You pay no income tax, no employee NIC, and no actual employer NIC.

At a 19 percent corporation tax rate, a salary of £12,570 with NIC of zero saves £2,388 in corporation tax. At 25 percent, the saving is £3,142. That is a clean win over the £6,500 route, provided the Employment Allowance is genuinely available.

The trap is co directors. If two directors are the only people on payroll, neither of you triggers Employment Allowance eligibility, even though there are two of you. You need at least one non director employee above the secondary threshold, or one of the directors must be paid above the secondary threshold and the other below, with specific timing. Talk to your accountant before assuming you qualify.

Option three: the higher salary, deliberate decision

Some directors choose to pay themselves a salary higher than £12,570, often to support a mortgage application, to fund a larger pension contribution, or to use up the personal allowance of a spouse who is also a director.

The maths here is no longer a sweet spot calculation. Every pound above £12,570 attracts 8 percent employee NIC, 20 percent income tax, and 15 percent employer NIC. The corporation tax saving on the gross cost partially offsets that, but the combined rate above the personal allowance is high enough that dividends remain more tax efficient for pure income.

Where this option does become attractive is for pension contributions. Employer pension contributions made by the company are not capped by your salary, but if you want to pay personal pension contributions, those are limited to your relevant UK earnings, which in practice means your salary. A higher salary unlocks a higher personal pension contribution.

Dividends in 2026/27

Whatever salary you pick, the rest of your remuneration usually comes as dividends. The 2026/27 dividend allowance is £500. Above that, the rates are 8.75 percent within the basic rate band, 33.75 percent in the higher rate band, and 39.35 percent in the additional rate band.

Two practical points are worth flagging. First, dividends are paid out of post tax profits, so corporation tax has already been deducted before you receive a penny. Second, the order of taxation matters. Salary is taxed before dividends, so your salary uses up the personal allowance first, and your dividends sit on top.

For a director on a £12,570 salary plus dividends, the next £37,200 of dividend income falls in the basic rate band, taxed at 8.75 percent after the £500 allowance. That is usually the most tax efficient slice of income an owner manager can take.

A simple decision tree

If you are a single director with no other employees, take a £6,500 salary. If you are an employer with Employment Allowance eligibility, take a £12,570 salary. If you have a specific reason to go higher, such as pension contributions or mortgage affordability, model the full cost first, including the marginal rates above the personal allowance.

Run the numbers each April. Thresholds, rates and Employment Allowance rules change more often than they used to, and the difference between the right and wrong salary is rarely huge in any single year, but it compounds quickly across a multi year holding period.

The bottom line

The right director's salary in 2026/27 is not a tax hack. It is a small, deliberate decision that protects your state pension record, keeps NIC out of the company, and squeezes corporation tax relief out of every pound that leaves the business as remuneration. Five minutes a year to set it correctly is one of the highest return uses of a UK founder's time.