The optimal director salary for 2026/27 — £5,000 or £12,570?

Salary of £5,000 — the “clean” option

£5,000 is the employer NI secondary threshold for 2026/27. Pay the director at that level and the company writes no National Insurance cheque, the director pays no employee NI, and there is no income tax — every pound of the salary is real take-home (GOV.UK).

Importantly, £5,000 still sits above the Lower Earnings Limit that secures a qualifying yearfor the State Pension. You don’t pay employee NI at this level, but the year still counts toward your record — as long as you’re on the payroll and the year is reported to HMRC through Real Time Information.

Where £5,000 sits best: single-director companies with no other employees paid above the secondary threshold. These companies generally cannot claim the Employment Allowance, so every pound of salary paid above £5,000 triggers employer NI in actual cash. Some directors still prefer £12,570 for the corporation-tax relief; others prefer the simplicity of £5,000 and zero NI cashflow. Both can be defensible.

Salary of £12,570 — the personal-allowance option

£12,570 is the UK personal allowance — the slice of income that is income-tax-free. Paying yourself a salary of exactly £12,570 uses that allowance in full, leaving more dividend headroom in the basic-rate band and reducing the dividends you need to draw to hit any given net income.

The cost: the £7,570 between £5,000 and £12,570 attracts employer NI at 15%, which is £7,570 × 15% = £1,135.50per year. That’s real cash leaving the company. But the salary itself is a deductible business expense, so it lowers the company’s corporation-tax bill:

• At the 19% small profits rate: £12,570 × 19% = £2,388.30saved in corporation tax. Net of the £1,135.50 NI, that’s about £1,253 ahead vs paying £0 salary.
• At the 25% main rate: £12,570 × 25% = £3,142.50 saved. Net of NI, roughly £2,007 ahead.

And if the company can claim the Employment Allowance (£10,500), the £1,135.50 of employer NI is absorbed entirely. £12,570 then becomes clearly more efficient than £5,000 — you get the full corporation-tax deduction with zero NI cost (GOV.UK — Employment Allowance).

The three deciding factors

The £5,000 vs £12,570 question turns on three inputs. Get these right and the answer for your company is usually unambiguous.

1. Employment Allowance eligibility

This is the single biggest lever. The rule the rest of the decision hangs on: if the company’s only employee paid above the secondary threshold during the year is a single director, the company cannot claim the Employment Allowance. Add a second employee (often a spouse, business partner, or first hire) paid above the threshold and the company usually qualifies.

• Can claim: £12,570 is almost always the better choice. The £1,135.50 employer NI is wiped out, the corporation-tax relief stands.
• Cannot claim: £5,000 is the conservative default. £12,570 can still win on net cost, but the gap is narrower and depends on the corporation-tax rate below.

2. The company’s corporation-tax rate

The higher the corporation-tax rate the company pays, the more valuable the salary deduction. The marginal effective rate between £50,000 and £250,000 of profit can be as high as 26.5% (the “marginal relief” band) — a salary deduction here is worth materially more than at the 19% small profits rate floor (GOV.UK — Corporation Tax rates).

The pattern: companies on the small profits rate (profits up to £50k) get the smallest benefit from the £12,570 salary; companies in the marginal relief band or at the full 25% rate get the largest. Don’t average across years — the rate that matters is the one applying to the current year’s profit.

3. Spouse, other income, and pensions

The optimal split changes again if your spouse has unused personal allowance, if you have rental or other PAYE income against your personal allowance, or if you’re running meaningful pension contributions through the company. These don’t change which of £5,000 or £12,570 is right in isolation; they change how much the difference is worth relative to other moves you could make. We cover this in the pensions and spouses spoke.

Two worked examples

Concrete numbers for the two most common scenarios. Round figures throughout; your accountant will run the exact arithmetic for your year-end position.

A: Single-director company, 19% CT rate, no Employment Allowance

• £5,000 salary: £0 NI, saves £950 in CT. Net company cost of paying the salary: £4,050.
• £12,570 salary: £1,135.50 NI, saves £2,388.30 in CT. Net company cost: £11,317.20.
• Director extracts an extra £7,570 of cash via salary instead of dividends. After-CT cost of an equivalent £7,570 dividend (which uses post-CT profit) is roughly £9,346. £12,570 wins by ~£1,250 a year — still worth it for most, though some prefer £5,000 simplicity.

B: Two-director company (or director + one employee), 25% CT rate, Employment Allowance claimed

• £12,570 salary: £1,135.50 employer NI covered by Employment Allowance. Out-of-pocket NI: £0.
• CT relief at 25%: £3,142.50.
• Net effect: the company keeps £3,142.50 of corporation tax that would otherwise have been paid, in exchange for cash already moving to the director’s personal account. £12,570 is unambiguously the better choice here.

The paperwork — what HMRC needs to see

Both salary levels require the same plumbing: the director on payroll, salary paid monthly or annually via PAYE, and Real Time Information submissions to HMRC each pay run. You don’t register for PAYE just to pay a £5,000 salary if the director is your only employee earning at that level, but you do need a PAYE scheme if you cross the reporting thresholds (most companies already have one). A director loan account is not a substitute — salary must move through payroll to count as a qualifying year for the State Pension.

What changed in April 2026 and why it matters

Two changes nudge the £5,000 vs £12,570 maths:

• Higher employer NI rate (15%)raises the cost of the salary above £5,000 — making the £12,570 choice slightly more expensive than in previous years for companies that can’t claim the Employment Allowance.
• Dividend tax rates rose — making salary marginally more attractive relative to dividends. For directors on the boundary, this can flip the calculation toward £12,570.

The two-tier choice itself is unchanged. What’s changed is that the right answer for some directors has moved — exactly the kind of case where a 20-minute review pays for itself.

The honest takeaway

There’s no universal number. The right salary genuinely depends on your company’s specific position — Employment Allowance eligibility, corporation-tax rate, other income, and pension plans. The post-April-2026 rate rise is exactly the kind of change that flips the answer for some directors. If your current split was set up before April 2026, it’s worth a re-check.

Related reading in the Salary vs Dividends series

• Salary vs dividend: what should a director pay themselves? — the pillar overview of the whole director-pay decision.
• How dividends are taxed in the UK (2026/27) — the rates and allowances that make the salary side of this trade-off make sense.
• Salary vs dividends: which is more efficient? — net take-home per £1 extracted, side by side.