The default: £12,570
If you run a UK limited company in 2025/26 with no other employment or income, paying yourself a director salary of £12,570 (the personal allowance) is the right answer for ~90% of single-director companies. The remaining 10% are edge cases covered below.
At £12,570:
- You pay zero income tax (within the personal allowance)
- You pay zero employee NI (the NI Primary Threshold is £12,570 in 2025/26)
- You build a qualifying NI year (because you're above the Lower Earnings Limit of £6,396)
- The £12,570 is a deductible expense against corporation tax — the company saves up to 26.5% (in marginal relief band) on it
The remaining profit is extracted as dividends, which are taxed at 8.75% (basic rate), 33.75% (higher) or 39.35% (additional) — at the director's marginal personal rate but with a £500 annual dividend allowance.
Why exactly £12,570 — and the maths
Three thresholds collide at £12,570 in 2025/26:
- Personal Allowance — £12,570. Income up to this is tax-free.
- NI Primary Threshold — £12,570. Salary up to this attracts zero employee NI.
- NI Secondary Threshold — £9,100. Salary above this attracts employer NI (15%).
Between £9,100 and £12,570, you pay employer NI (15% on the slice above £9,100) but no employee NI or income tax. From £12,570 upward, both employee NI (8%) and income tax (20%) kick in, alongside the employer NI you were already paying.
The maths at £12,570:
- Salary paid: £12,570
- Employer NI (15% on £12,570 - £9,100 = £3,470): £520.50
- Personal tax + NI on the salary: zero
- Total cost to the company: £13,090.50
- Corporation tax saving (19-26.5% on £13,090.50): £2,487-£3,469
- Net cost to extract £12,570 in personal income: £9,621-£10,603
Compare extracting £12,570 as dividends at the basic rate:
- Pre-tax profit needed: £12,570 / 0.81 (after 19% CT) = £15,519
- Less corporation tax: £2,949
- Dividend tax at 8.75% on (£12,570 - £500 allowance): £1,056
- Net cost to extract £12,570 in dividends: £15,519 - £12,570 + £1,056 = £4,005
Wait — that looks like dividends win by a lot. The catch: you must pay yourself some salary to claim Employment Allowance, to satisfy IR35-style HMRC scrutiny in some cases, and to maintain NI record. The £12,570 salary route trades a small efficiency loss for those non-tax benefits.
When £9,100 (the Secondary Threshold) wins
If your company is in a marginal-relief band where corporation tax is effectively 26.5%, the employer NI of 15% on the salary slice above £9,100 (so £520.50 at £12,570 salary) becomes a real cost. In this band, paying yourself £9,100 instead of £12,570 saves the £520.50 employer NI without forfeiting much CT benefit.
The trade-off: at £9,100 salary, you still build NI credit (above the LEL of £6,396), still get personal allowance for dividends to fill, but skip the employer NI cost. You'd extract the additional £3,470 (£12,570 - £9,100) as dividends instead.
This becomes the optimum when:
- You don't have Employment Allowance (single-director companies usually don't)
- Your company's profit is between £50,000 and £250,000 (marginal relief band)
- You're a higher-rate-taxpayer overall (dividend tax on the swapped slice is 33.75% but the comparison still works in favour of £9,100)
When a higher salary makes sense
Three situations push the optimal salary above £12,570:
- You qualify for Employment Allowance. If your company has more than one employee (or qualifying director) and isn't a single-director-only company, you get up to £10,500 off employer NI. That removes the cost of paying employer NI on salary above £9,100, making higher salaries more competitive with dividend extraction.
- You're using the salary to qualify for a mortgage. Many lenders calculate borrowing on salary + dividends but apply haircuts to dividend income (typically 50%). A higher salary in the year(s) before a mortgage application can materially increase borrowing capacity. Specialist broker advice helps here.
- You want to maximise pension contributions. Personal pension contributions are limited to the higher of £3,600 or your "relevant UK earnings" (broadly your salary, not dividend income). For directors planning very large personal pension contributions, a salary high enough to support those contributions can make sense — though company-paid contributions are usually the simpler and more tax-efficient route.
Employment Allowance — the gotcha
Employment Allowance gives qualifying employers up to £10,500 off employer NI per tax year. The rules changed in 2020 to exclude single-director companies (where the only employee is the director). For most owner-managed Ltd companies with just one director and no other employees, Employment Allowance is unavailable.
If you bring on a second person — director, spouse on the payroll, or first employee — you may become eligible. Talk to your accountant before assuming you qualify; the rules are specific and HMRC checks them.