Single-director limited companies · 2026/27
What's the most tax-efficient director's salary?
If you run a one-person limited company, the classic move is a small salary plus dividends. But which salary? Put in this year's company profit and see your real take-home for the three salaries every contractor accountant weighs — £0, £5,000 and the full £12,570 — after Corporation Tax, National Insurance and dividend tax.
Your company year
Enter your annual profit before paying yourself — turnover minus business expenses, but before your own salary or dividends. Nothing is sent anywhere; this runs entirely in your browser.
Why a small salary plus dividends wins
A limited company pays Corporation Tax on its profits, and you then pay personal tax on whatever you take out. Salary and dividends are taxed very differently:
- A salary is a business expense, so it cuts the company's Corporation Tax bill — but above the thresholds it attracts employer's and employee's National Insurance
- Dividends are paid from after-tax profit and carry no National Insurance, and dividend tax rates (10.75% / 35.75% / 39.35%) are lower than salary tax rates
- The sweet spot is a salary big enough to use your tax-free allowances and stay Corporation-Tax deductible, with the rest taken as dividends
For 2026/27 the standard answer for most sole directors is a salary of £12,570 — the full Personal Allowance. Employer's NI at 15% is due on the £7,570 above the £5,000 secondary threshold, but that salary and its NI are both deductible against 19%+ Corporation Tax, and the salary secures a qualifying year towards your State Pension. The calculator shows all three so you can see the gap for your own numbers.
The catch: no Employment Allowance
The £10,500 Employment Allowance that wipes out employer's NI for most small firms is not available to a company whose only employee is a single director. That's why a £12,570 salary still triggers about £1,135 of employer's NI here. If your company has a second employee on the payroll, the picture changes — the allowance can cover that NI, which usually tips the balance further towards the £12,570 salary. This tool models the common sole-director case with no Employment Allowance.
The rules in short
- Corporation Tax: 19% up to £50,000 profit, 25% from £250,000, with Marginal Relief between
- Employer's NI: 15% on salary above the £5,000 secondary threshold (no Employment Allowance for a lone director)
- Employee's NI: 8% on salary between £12,570 and £50,270, 2% above
- Dividends: first £500 tax-free, then 10.75% / 35.75% / 39.35% by band
- All figures assume you draw all the post-tax profit in the year and have no other income
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Common questions
What is the most tax-efficient director's salary for 2026/27?
For most sole directors it's £12,570 — the full Personal Allowance. Although employer's National Insurance is due on the part above the £5,000 secondary threshold, both the salary and that NI reduce your Corporation Tax, and the salary secures a qualifying year towards your State Pension. A £5,000 salary avoids all employer's NI but wastes some of your tax-free allowance. The calculator shows the take-home for each.
Why not just take everything as dividends?
Because a salary is deductible against Corporation Tax and dividends are not. Paying no salary means the company is taxed on more profit at 19%+ before you can draw it, which usually leaves you worse off than paying a salary up to at least the Personal Allowance.
Can I claim the Employment Allowance as a single director?
No. A limited company whose only employee is a single director is specifically excluded from the £10,500 Employment Allowance. If you take on a second employee who is paid above the secondary threshold, the company can usually claim it — which changes the sums in favour of a larger salary.
Does a £5,000 salary count towards my State Pension?
Not on its own. To earn a qualifying year you need earnings at or above the Lower Earnings Limit, which is £129 a week (about £6,700 a year) for 2026/27. A £5,000 salary is below that, whereas a £12,570 salary is well above it and secures the year.
Do I pay National Insurance on dividends?
No. Dividends never carry National Insurance. They have their own tax rates (10.75%, 35.75% and 39.35% for 2026/27) after a £500 tax-free dividend allowance, and stack on top of your salary to decide which rate applies.
Is this Scotland-safe?
Dividend tax, National Insurance and Corporation Tax are the same across the UK, but Scottish taxpayers have different Income Tax bands on the salary part. If you're a Scottish taxpayer, treat the salary tax here as an approximation.
Run your whole company year, not just the salary
Knowing the optimal salary is step one. The bigger questions — how much tax to set aside from each invoice, what your real take-home is across salary and dividends, and whether the numbers still stack up next year — are what our spreadsheet toolkit is built for.
- Self Assessment Tax Estimator 2026/27 — your whole personal bill, salary plus dividends plus anything else, with the tax to set aside.
- Freelance Day-Rate & Profit Calculator — work back from the take-home you want to the day rate you must charge.
- Invoice Tracker & Log — paid, outstanding and overdue, automatically, with a chase list.
- Rental Property ROI & Yield Calculator — for the directors who also let property.
Excel and Google Sheets. Working formulas, not just formatting. Built and checked by us, with AI assistance, and every calculation verified.
Get the Tax Estimator — £9 →£9 on its own, or all four tools for £19, with a 14-day money-back guarantee.