The optimal director salary is the salary level at which the combined cost of income tax, employee National Insurance, employer National Insurance and the corporation tax saving lines up to give you the most cash in hand for the same total extraction from the company. For 2026/27 the answer for most companies is £12,570; for sole directors who cannot claim the Employment Allowance, the answer is closer to £6,708 but rarely meaningfully lower than £12,570. This calculator runs both scenarios for your specific company and shows you the difference in pounds.
Why £12,570 is the default answer for 2026/27
£12,570 is the personal allowance. A salary at exactly this level pays no income tax. It also pays no employee National Insurance, because the primary threshold sits at £12,570. The director gets the full £12,570 in their pocket without any personal deductions.
The company side is where the Employment Allowance does the work. Employer National Insurance is 15% on salary above the £5,000 secondary threshold. So a £12,570 salary normally produces (£12,570 − £5,000) Ã, 15% = £1,135.50 of employer NI. For a company with two or more employees on the payroll that can claim the Employment Allowance, this £1,135.50 is offset by the £10,500 allowance and the actual cost is zero.
Add to that the corporation tax saving. A £12,570 salary is a deductible expense, which reduces taxable profit by £12,570 and saves corporation tax at whatever rate the company pays. At 19% (small profits rate) the saving is £2,388; at 26.5% (marginal rate) it is £3,331; at 25% (main rate) it is £3,143.
The net result for an Employment Allowance company at the marginal rate: the director receives £12,570 in cash, the company saves £3,331 of corporation tax, and the employer NI is offset to zero. Total benefit to the household: about £15,901 from a single £12,570 salary line.
Why sole directors often use £6,708 instead
The Employment Allowance has a quirk: a company is not eligible if its only employee paid above the secondary threshold is a director. In practice this rules out most one-person limited companies. Without the allowance, the £1,135.50 of employer NI on a £12,570 salary becomes a real cost.
Compared to a £6,708 salary (the lower earnings limit, which still earns a qualifying year for the state pension), the maths shifts:
| Scenario (sole director, no EA) | £6,708 salary | £12,570 salary |
|---|---|---|
| Salary received | £6,708 | £12,570 |
| Employer NI | £256 | £1,136 |
| Corporation tax saved at 26.5% | £1,847 | £3,629 |
| Net household benefit | £8,299 | £15,063 |
The difference of about £6,800 is exactly the higher salary minus the higher employer NI minus the cost of the higher dividend that the £6,708 director would otherwise have to take instead. After running the full salary plus dividend stack, sole directors typically end up about £400–£500 better off with the higher salary, though some prefer £6,708 for cash-flow simplicity. The calculator on this page settles the question for your specific profit level.
What the calculator factors in
The calculator runs both salary scenarios and shows the comparison after every relevant tax line:
- Income tax on the salary at your marginal rate
- Employee NI at 8% above the primary threshold
- Employer NI at 15% above the secondary threshold
- Employment Allowance offset, if eligible
- Corporation tax saving from the salary deduction at the rate matching your profit level
- Dividend tax on the dividends taken to top up to your target extraction
It also shows the marginal cost of each additional £1,000 of salary above £12,570, so you can see exactly when the cross-over happens (typically around £12,570 for EA companies and around £8,840 for non-EA companies, give or take £200).
When £9,100 used to be the answer
If you read older guidance, you will see £9,100 cited as the optimal director salary. This was correct when the secondary threshold for employer NI was £9,100, which it was until April 2025. The April 2025 cut to £5,000 changed the maths. £9,100 is no longer optimal in 2026/27 — it gives you employer NI on £4,100 of salary without any of the corresponding personal-tax efficiency benefit.
Key takeaways
- £12,570 is the default optimal director salary for 2026/27 if your company can claim the Employment Allowance.
- For sole directors who cannot claim the Employment Allowance, £12,570 is still usually slightly better than £6,708, but the gap is narrow and either is defensible.
- The Employment Allowance is £10,500 in 2026/27 and the £100,000 prior-year liability cap has been removed, so larger employers can also claim.
- The £5,000 secondary threshold (down from £9,100 in April 2025) is the main reason older guidance is now wrong.
- The right answer always depends on your company’s corporation tax rate band, so run the calculator with your actual profit level.
Frequently asked questions
What is the Employment Allowance and who can claim it? The Employment Allowance is a £10,500 per-company offset against employer NI. Companies with two or more employees paid above the secondary threshold can claim. Companies whose only such employee is a single director cannot. Most other employers can; charities, small businesses and those with multiple directors are typically eligible.
Can I take dividends without taking any salary? You can, but it has consequences. No qualifying year for the state pension that year. No salary record for mortgage and credit applications. No ability to make personal pension contributions through salary sacrifice. Most accountants recommend at least the lower earnings limit of £6,708 to preserve the pension qualifying year.
Does the optimal salary change in Scotland? The personal allowance is UK-wide, so £12,570 still gives a no-income-tax salary north of the border. Scottish tax bands kick in above £12,570, which means dividend tax interaction differs slightly, but the salary anchor point is the same.
What about director salary above £12,570? Salary above £12,570 attracts 20% income tax and 8% employee NI on every £1, plus 15% employer NI (less Employment Allowance if available). After the corporation tax saving, the effective marginal cost is usually higher than taking the same money as a dividend, even at the new 10.75% basic-rate dividend tax. So £12,570 is the cap for the salary line in almost all cases.