Directors, salary & dividends
For most single-director companies the optimal salary sits at the National Insurance secondary threshold or the personal allowance, depending on Employment.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityA single director with no Employment Allowance usually takes a salary at the £5,000 secondary threshold, avoiding employer NIC entirely. A company with two or more employees claiming Employment Allowance usually takes £12,570, because the employer NIC is absorbed by the allowance.
Why the two answers differ
Protecting your state pension record
A single director with no Employment Allowance usually takes a salary at the £5,000 secondary threshold, avoiding employer NIC entirely. A company with two or more employees claiming Employment Allowance usually takes £12,570, because the employer NIC is absorbed by the allowance.
Employer National Insurance is charged at 15% above the £5,000 secondary threshold. A sole director company cannot claim Employment Allowance, so paying above £5,000 creates real employer NIC at 15%, offset only by 19% to 26.5% corporation tax relief. The net result is usually close to neutral, which is why £5,000 is the safe default.
Where Employment Allowance is available, the employer NIC on a £12,570 salary is covered by the allowance, so the higher salary is deducted from profit with no NIC cost. That saves corporation tax at your marginal rate on the extra £7,570.
A salary at or above the lower earnings limit gives a qualifying year for the state pension even where no NIC is actually paid. This is the reason to run payroll at all rather than taking dividends alone, and it matters most for directors without 35 qualifying years.
Check your National Insurance record on your personal tax account before deciding. If you already have enough qualifying years, the pension argument disappears and the decision is purely about tax.
Rates, thresholds and deadlines quoted here reflect the 2026/27 UK position and current Companies House and HMRC guidance. Check GOV.UK, or ask us, before relying on them for your own company.
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We work with company directors across London and Surrey from our office at 12 London Road, Morden, London SM4 5BQ. Pick your area, or send the form below and we will call you back.
Frequently asked
Yes, but you lose the qualifying year and the corporation tax deduction. It rarely helps.
Yes. If another job already uses your personal allowance, the dividend-heavy approach usually wins and the salary is set lower.
Our salary versus dividend calculator runs both 2025/26 and 2026/27 and shows the net position for your profit level.
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No. This page explains general UK rules and common accounting treatment. Your facts, contracts and wider tax position must be reviewed before you rely on a conclusion.
Included approach
Check the current rules
Deadlines, thresholds and filing rules change. GOV.UK and Companies House publish the current statutory position; advice should then be applied to your company’s circumstances.
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