What is the optimal salary and dividend mix for a company director in 2026/27?

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Owner-managed company directors can choose between salary and dividends when extracting profit, and the optimal mix for 2026/27 depends on company profits, other income, and whether the Employment Allowance applies. **Key 2026/27 rates** - Personal Allowance: £12,570 - Employer NI threshold (Secondary Threshold): £5,000/year — employer NI at 13.8% applies above this - Employment Allowance: £10,500 (available only if the director has at least one other employee; sole director-only companies cannot usually claim) - Dividend allowance: £500 (taxed at 0%) - Dividend tax rates: 8.75% (basic), 33.75% (higher), 39.35% (additional) **Strategy 1: Salary at Secondary Threshold (£5,000) — sole director** Taking £5,000 salary where the company has no other employees avoids employer NI entirely. However, this leaves £7,570 of the Personal Allowance wasted. Total tax saved: approximately £1,050 in employer NI vs PAYE salary. **Strategy 2: Salary at Personal Allowance (£12,570)** Taking salary at £12,570 uses the full PA. Employer NI on £12,570 − £5,000 = £7,570 × 13.8% = £1,044 cost to the company. But the salary is deductible against Corporation Tax at 25%, saving £3,142.50 in CT. Net benefit favours salary at PA over £5,000 threshold when CT rate is 25%. **Dividend extraction above salary** Further profit extracted as dividends (from retained post-CT profit) is taxed at 8.75% (within basic rate band above PA + £500 allowance). Compare this to salary above PA at 40% income tax + 13.8% employer NI. **Worked example** Company profit before salary: £80,000. Director salary £12,570, employer NI £1,044, CT on remaining £66,386 at 25% = £16,597. Net retained profit for dividends: £49,789. Dividends to director: £500 at 0% + £37,200 at 8.75% = £3,255 dividend tax. Total director take-home: approximately £59,514.

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