Director Salary Calculator UK
How this calculator works
The calculator estimates PAYE Income Tax, director Class 1 National Insurance using annual director thresholds, employer Class 1 National Insurance, pension treatment and optional Employment Allowance.
Example calculation
A Category A director on £12,570 salary normally has no employee NIC because annual earnings do not exceed the annual Primary Threshold, while employer NIC depends on earnings above the annual Secondary Threshold and Employment Allowance eligibility.
What the Calculator Results Mean
The calculator shows several key figures that help you understand your tax position and choose the optimal salary level.
Total tax payable shows the combined Income Tax, employee National Insurance, and dividend tax you will pay personally. This figure helps you compare different salary levels.
Corporation tax saving shows how much tax your company saves by paying you a salary instead of taking all income as dividends. Salary is deductible for corporation tax, so paying yourself a salary reduces your company's taxable profits.
Net income is the amount you actually receive after all taxes have been paid, both personally and by the company. This is the figure that matters most for your personal finances.
Effective tax rate shows the percentage of your total income that goes to tax. This helps you compare the overall efficiency of different salary and dividend combinations.
The calculator also shows the breakdown of each tax component, so you can see exactly how much is going to Income Tax, National Insurance, and dividend tax.
The calculator shows total tax payable, corporation tax saving, net income, and effective tax rate. These figures help you compare different salary and dividend combinations.
Example Calculation
The following example is illustrative only and assumes a company with profits of £60,000, a corporation tax rate of 19%, and a basic rate taxpayer.
A salary of £12,570 uses the full personal allowance, meaning no Income Tax is paid on the salary. The salary is deductible for corporation tax, saving the company £2,514 (19% of £12,570). The remaining profits are taken as dividends, which are taxed at 10.75% for basic rate taxpayers.
The total tax payable is significantly lower than taking the entire amount as salary. The calculator shows the total tax payable, the net income received, and the effective tax rate across all income sources. This allows you to see the benefit of the salary and dividend mix compared to a pure salary or pure dividend approach.
A £60,000 profit company with a £12,570 salary and dividends achieves significant tax savings. The salary saves corporation tax and uses the personal allowance, while dividends are taxed at lower rates. This example is illustrative only.
Why the £5,000 Salary Is Often Considered
The National Insurance secondary threshold is £5,000 per year for the 2026/27 tax year. This is the level at which the company starts paying employer National Insurance on your salary.
Paying yourself a salary of £5,000 may have several advantages. It is fully deductible for corporation tax, saving the company between £950 and £1,250 depending on the corporation tax rate. Depending on your total earnings and National Insurance record, a salary at or above the Lower Earnings Limit may also help towards a qualifying year for State Pension purposes. However, the State Pension rules are complex, and you should check your own National Insurance record to understand your position.
A £5,000 salary avoids employer National Insurance entirely, as employer NI is only payable on earnings above the secondary threshold. By keeping your salary at or below this level, you save the company 15% on the portion that would otherwise be taxable.
Some directors choose a salary of £12,570 to use the full personal allowance. This saves Income Tax but incurs employee National Insurance at 8% on the portion above the primary threshold, and employer National Insurance at 15% on the portion above the secondary threshold. For many directors, the extra tax and National Insurance may outweigh the corporation tax saving, depending on their circumstances.
The £5,000 salary avoids employer National Insurance and saves corporation tax. Depending on your National Insurance record, it may also contribute towards a State Pension qualifying year. A £12,570 salary uses the personal allowance but incurs National Insurance costs.
How National Insurance Works for Directors
Directors are treated differently from employees for National Insurance purposes. Unlike employees, who are subject to weekly or monthly thresholds, directors are subject to annual thresholds.
This means the thresholds are applied to your total earnings for the tax year, not to each pay period. The annual primary threshold is £12,570, and the annual secondary threshold is £5,000. Employee National Insurance is payable at 8% on earnings between £12,570 and £50,270, and 2% above £50,270.
The secondary threshold of £5,000 is particularly important for directors. Paying a salary below this level avoids employer National Insurance entirely. Paying above this level incurs employer National Insurance, which is an additional cost of employment.
For many directors, the salary level that may be most tax-efficient is just below or at the secondary threshold to avoid employer National Insurance while still receiving the corporation tax saving. However, the optimal level depends on your total income, company profits, and other factors.
Directors use annual National Insurance thresholds, not weekly or monthly thresholds. Employer NI starts at £5,000 and employee NI starts at £12,570. The £5,000 threshold is key for avoiding employer NI costs.
Corporation Tax and Director Salaries
When you pay yourself a salary as a director, the salary is treated as a business expense. This means it reduces the company's taxable profits, saving corporation tax at the company's rate.
For the 2026/27 tax year, the corporation tax rates are 19% for profits up to £50,000, 25% for profits over £250,000, and marginal relief applies between these thresholds. A salary of £10,000 saves the company between £1,900 and £2,500 in corporation tax.
The corporation tax saving is one of the main reasons to pay a salary rather than taking all income as dividends. However, the company must also pay employer National Insurance on the salary above the £5,000 threshold, which reduces the net benefit.
For small companies with profits below £50,000, the 19% corporation tax rate may make salary more attractive than for larger companies paying 25%. The calculator factors in the corporation tax rate to show the net tax position.
Director salaries save corporation tax at 19% to 25%. The corporation tax saving must be weighed against Income Tax, employee National Insurance, and employer National Insurance costs.
Common Director Salary Mistakes
Several common mistakes can lead to higher tax bills or compliance issues. Understanding these helps you avoid costly errors.
Paying too much salary. Taking a high salary instead of dividends often increases your tax bill because of National Insurance. The tax advantage of dividends typically outweighs the corporation tax saving from a higher salary for many directors, though this depends on your circumstances.
Paying no salary. While avoiding National Insurance, a zero salary means you lose out on the corporation tax deduction and may not build a State Pension qualifying year, depending on your National Insurance record. The £5,000 salary is often worth considering.
Ignoring employer National Insurance. When you pay yourself a salary above £5,000, the company must pay employer National Insurance at 15%. This is an additional cost of employment that reduces the tax benefit.
Not considering pension contributions. Company pension contributions are often more tax-efficient than salary or dividends. Missing this opportunity can mean paying more tax than necessary.
Common mistakes include paying too much salary, paying no salary, ignoring employer National Insurance, and missing pension contribution opportunities. The £5,000 salary is often a good baseline to consider.
Director Salary Calculator FAQs
What is the optimal director salary for 2026/27?+
Should I take salary or dividends as a director?+
How does National Insurance work for directors?+
Can I pay myself a salary if my company makes a loss?+
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Important information
This calculator gives an estimate only and should not be treated as accounting, financial or tax advice. Check official HMRC guidance or speak to a qualified adviser for complex cases.