Director salary: what to pay yourself
For most sole directors the answer is £12,570. Here is why that figure keeps coming up, the two thresholds underneath it that people miss, and the situations where a higher director pay rate genuinely wins.
Updated 10 September 2026 · Tax year 2026/27
Looking for what directors are paid across the market rather than what to pay yourself? That is a different question and this page does not answer it. This is about the company director salary you set for tax purposes.
Everything below applies to a limited company director salary specifically. A sole trader does not take a salary at all, because they are not employed by their business. They draw profit, and the tax works differently.
Running a salary means registering a PAYE scheme, which produces two reference numbers that are constantly confused. See PAYE reference numbers for which is which.
The three numbers that decide it #
| Threshold | 2026/27 | What happens here |
|---|---|---|
| Secondary Threshold | £5,000.00 | Above this the company starts paying employer National Insurance at 15% |
| Lower Earnings Limit | £6,708.00 £129 a week |
At or above this the year counts towards your State Pension |
| Personal Allowance and Primary Threshold | £12,570.00 | Above this you start paying Income Tax and employee National Insurance |
Note that the Personal Allowance and the employee National Insurance Primary Threshold are the same figure. That alignment is exactly why £12,570 is such a common answer: it is the highest salary you can take with no personal tax and no employee National Insurance at all.
The three candidate salaries, compared #
| Salary | Employer NI | Employee NI | Income Tax | State Pension year |
|---|---|---|---|---|
| £5,000.00 | £0.00 | £0.00 | £0.00 | No |
| £6,708.00 | £256.20 | £0.00 | £0.00 | Yes |
| £12,570.00 | £1,135.50 | £0.00 | £0.00 | Yes |
Employer National Insurance shown without the Employment Allowance. With it, all three are zero.
Why £12,570 usually wins #
The £5,000 salary avoids employer National Insurance entirely, which looks appealing until you follow the money. Every extra pound of salary is deductible against Corporation Tax.
Going from £5,000 to £12,570 adds £7,570 of salary. That costs £1,135.50 in employer National Insurance. But it also removes £8,705.50 of company profit once the National Insurance is counted, saving £1,654.05 of Corporation Tax at the small profits rate.
The saving beats the cost, and you receive the extra £7,570 with no Income Tax and no employee National Insurance. That is the whole argument, and it holds at every profit level above the small profits rate.
When a higher salary is better #
The company can claim the Employment Allowance
The allowance covers up to £10,500.00 of employer National Insurance. That is fully absorbed at a salary of £75,000, so up to that point the employer charge is free. A sole director with no other employee on the payroll cannot claim it.
Profits are high
Once Corporation Tax marginal relief bites at 26.5% and dividends land in the 39.35% additional rate band, the combined cost of a dividend can exceed the combined cost of salary. The rule of thumb breaks, and the only way to know is to test it. The optimiser does that for your figures.
Two directors, or more #
A co director salary follows the same logic, taken separately for each person. Each director has their own Personal Allowance and their own National Insurance thresholds, so two directors can each take £12,570 with no Income Tax and no employee National Insurance between them.
The company director salary UK thresholds do not get shared or halved. What does change is the Employment Allowance: a company with two or more people on the payroll earning above the Secondary Threshold can usually claim it, which a sole director cannot.
Things that catch directors out #
- PAYE is compulsory. A director salary is employment income. It needs a PAYE scheme and real time reporting even where no tax is due.
- Directors use an annual National Insurance basis. Contributions are worked out on cumulative earnings for the year, not month by month, so an irregular salary does not create the odd results it would for a normal employee.
- The salary has to be real. It must actually be paid or credited to a director loan account, and recorded. A figure that only exists in the year-end accounts invites questions.
- Dividends need distributable profit. Salary can be paid out of cash. Dividends can only come from accumulated realised profit.
Common questions #
What salary should a company director take?
For most sole directors, £12,570. It uses the full Personal Allowance, carries no Income Tax and no employee National Insurance, protects a State Pension qualifying year, and reduces Corporation Tax. The cost is £1,135.50 of employer National Insurance, which saves more Corporation Tax than it costs.
What is the lowest director salary that still counts for the State Pension?
The Lower Earnings Limit, which is £6,708 a year or £129 a week for 2026/27. At or above that, the year counts towards your State Pension record even though no National Insurance is actually paid until the £12,570 Primary Threshold.
Does a director salary have to go through PAYE?
Yes. A director salary is employment income and must be run through a PAYE scheme and reported in real time, even where no tax or National Insurance is due on it.
Is a higher director salary ever better?
Yes, in two situations. If the company can claim the Employment Allowance, employer National Insurance is covered up to a £75,000 salary. And at high profits, where Corporation Tax marginal relief applies at 26.5% and dividends land in the 39.35% band, extra salary can beat extra dividends.
Related: what directors' remuneration means, and the limited company tax calculator for the full picture.