Optimal salary/dividend split for Ltd directors — 2026/27

For a single-director personal service company in 2026-27, the optimum salary is almost always £12,570 — exactly the personal allowance — with everything else taken as dividends. Here's the maths.

Why the personal allowance is the sweet spot

Salary up to £12,570 is:

• Corporation-tax deductible. Every pound of salary reduces company profit and saves CT at 19% (small profits rate) or up to 25% (above £250k).
• Free of income tax. The personal allowance covers it.
• Free of employee National Insurance. The Class 1 primary threshold sits at £12,570 too.

The only cost is employer NI: 15% on the slice between £5,000 (the secondary threshold) and £12,570 — a £1,135.50 bill in 2026-27. That cost is itself corporation-tax deductible, so the net cost to the company is much smaller.

What about going higher than £12,570?

Above £12,570, salary becomes inefficient:

• Income tax kicks in at 20% on the salary itself.
• Employee NI kicks in at 8% (Class 1 primary).
• Employer NI continues at 15%.

Per extra pound of salary above £12,570, the director keeps roughly £0.72 after tax and NI, while the company pays £1.15 in salary + employer NI. Compared to taking the same £1.15 of profit as a dividend (paying CT then dividend tax), the salary route loses out.

What about going lower than £12,570?

Salary below the £5,000 secondary threshold avoids employer NI entirely. At first glance that looks cleaner. But:

• You waste personal allowance you can't transfer.
• You miss out on the corporation-tax saving from a deductible salary expense.
• The dividend tax rate (10.75% basic in 2026-27) is higher than the effective rate on the equivalent salary slice.

Modelling each scenario at £80k profit: salary £12,570 wins by ~£800/year over salary £5,000.

When the optimum changes

The £12,570 recommendation depends on:

• Profit level. Below ~£12,570 of profit, you can't pay yourself the full PA salary. The optimiser scales down.
• Other income. If you have an employed job using your PA elsewhere, the calculation shifts.
• Employment Allowance. Multi-director companies or those with non-director employees can claim Employment Allowance — the £10,500 wipes out the small employer NI bill and can make slightly higher salaries optimal in some scenarios.
• Pension. Company pension contributions are also CT-deductible, so the math interacts. The Annual Allowance (£60,000, tapered for high earners) caps what you can put in with tax relief.