If you run your own limited company and pay yourself a salary as a director, the 2026/27 tax year brings a number of important payroll changes you need to be across. From National Insurance thresholds to optimising your salary strategy, here is everything you need to know.

1. Employer National Insurance — The Numbers for 2026/27

The April 2025 Budget changes to employer National Insurance are now firmly embedded, and the same structure carries forward unchanged into 2026/27. There is no further rate increase — but that does not mean your NI bill stays the same.

Key employer NI figures for 2026/27:

Threshold / Rate	2026/27 Figure
Secondary (Employer) Threshold	£5,000 per year (£96/week, £417/month)
Employer NI Rate	15% on earnings above threshold
Class 1A NI (benefits in kind)	15%
Class 1B NI (PSAs)	15%
Upper Earnings Limit (employee NI)	£50,270 per year

The Secondary Threshold remains frozen at £5,000 — significantly lower than the £9,100 it stood at before April 2025. This means employers (including your limited company) start paying NI on a director’s earnings above just £5,000 a year, at 15%.

Important: As salaries and bonuses increase, your employer NI bill rises with them — even without any change in the rate. Wage growth alone will push up your NI costs this year.

2. The Most Tax-Efficient Director Salary in 2026/27

For most director-shareholders, salary planning is all about finding the sweet spot between minimising NI, maximising tax-free income, and protecting State Pension entitlement. The right answer depends on whether your company can claim the Employment Allowance.

Sole Director — No Employees (Cannot Claim Employment Allowance)

If you are the only person on your payroll and you are a director, your company is specifically excluded from the Employment Allowance. This means every pound above the £5,000 secondary threshold costs the company 15% in employer NI.

Common salary strategy options for sole directors in 2026/27:

Salary Level	What It Achieves	Key Consideration
£5,000 (Secondary Threshold)	No employer NI payable	Too low for State Pension credit (LEL is £6,708)
£6,708 (Lower Earnings Limit)	Earns State Pension credit — no employee NI but £255 employer NI	Small employer NI cost but pension year protected
£12,570 (Personal Allowance)	No income tax; full personal allowance used; pension credit; employer NI payable on £7,570 = £1,136	Most popular — maximise CT deduction vs NI cost

There is no single ‘correct’ answer for sole directors — the optimum salary depends on your personal circumstances, other income, pension plans and Corporation Tax position. Speak to your accountant to model the numbers for your specific situation.

Director with Employees — Employment Allowance Available

If your limited company has at least one other employee (or two or more directors) earning above the secondary threshold, you may be eligible for the Employment Allowance of £10,500 in 2026/27.

With the Employment Allowance available, many directors will find it efficient to pay themselves a salary up to the Primary Threshold of £12,570 — the point at which employee NI begins. The Employment Allowance absorbs the employer NI that would otherwise be due on this salary level.

• Two directors each earning £12,570 generates employer NI of around £2,272 total — comfortably within the £10,500 Employment Allowance.
• Employment Allowance eligibility: your employer NI bill must have been under £100,000 in the prior year. Since April 2025, the £100,000 cap was removed for most employers.
• The allowance resets each tax year — you must claim it again for 2026/27 through your payroll software or EPS.

3. How Directors’ NI Is Calculated Differently

Directors are subject to special National Insurance rules that differ from regular employees. Rather than being calculated on each individual payslip, NI for directors uses an annual earnings period approach.

This means:

• NI is calculated cumulatively across the whole tax year, not just on each month’s pay.
• If a director receives irregular payments or large bonuses mid-year, the NI calculation ‘catches up’ over the remaining pay periods.
• Payroll software should automatically handle this — but it is worth checking that your software is set up correctly with the director’s NI category letter (usually Category A, or Category M for under-21s).

If you are using the alternative method (calculating NI on each payment rather than cumulatively), you will need to reconcile at year-end to ensure the correct annual NI has been paid. HMRC’s CA44 guidance covers both methods in detail.

4. Personal Allowance and Income Tax — Unchanged

For 2026/27, the personal allowance remains frozen at £12,570 — a position that has been confirmed through to 2031. Income tax rates and bands are also unchanged for England, Wales and Northern Ireland:

Rate	Rate of Tax	Applies to Earnings Above Personal Allowance
Basic Rate	20%	Up to £37,700
Higher Rate	40%	£37,701 to £125,140
Additional Rate	45%	Above £125,140

Note: The personal allowance reduces by £1 for every £2 of income above £100,000. Directors with high dividend income alongside salary should take this taper into account when planning their total extraction.

5. Dividend Tax Rates in 2026/27

Most director-shareholders combine a salary with dividend payments. Dividends remain exempt from National Insurance, making them a tax-efficient way to extract profits — though dividend tax rates apply:

Dividend Tax Rate	2026/27
Basic Rate (8.75%)	Dividends falling within basic rate band
Higher Rate (33.75%)	Dividends falling within higher rate band
Additional Rate (39.35%)	Dividends above £125,140
Dividend Allowance	£500 (unchanged)

Dividends can only be paid from the company’s available post-tax profits. Paying dividends without sufficient retained profits can create unlawful dividend issues, so always confirm profit availability with your accountant before declaring dividends.

6. Benefits in Kind — The Last Year Before Major Changes

The 2026/27 tax year is the final year in which the existing P11D system operates in its current form for most employers. Mandatory payrolling of benefits in kind (BiKs) comes into force from 6 April 2027.

For 2026/27, the position remains:

• Benefits in kind (company car, private medical insurance, mobile phone etc.) are reported to HMRC on form P11D after the tax year ends, with a filing deadline of 6 July 2027.
• Class 1A NI at 15% is payable on the taxable value of benefits provided.
• Voluntary payrolling of BiKs is available for 2026/27 — but new registrations for voluntary payrolling closed on 5 April 2026. If you did not register before that date, you will need to continue with P11Ds for 2026/27.

Key action for directors: Begin preparing now for mandatory payrolling of BiKs from April 2027. Review the benefits your company provides, check your payroll software’s readiness, and consider whether any benefits can be restructured before the deadline.

7. Auto Enrolment — Thresholds Unchanged

For 2026/27, the auto enrolment qualifying earnings thresholds remain the same as 2025/26:

• Lower Level of Qualifying Earnings: £120 per week / £520 per month
• Upper Level of Qualifying Earnings: £967 per week / £4,189 per month
• Auto Enrolment trigger point: £10,000 per year
• Minimum employee contribution: 5%
• Minimum employer contribution: 3%

Directors of single-person companies are generally exempt from auto enrolment obligations for themselves, but if you take on employees, these thresholds will apply.

8. Action Checklist for Directors — 2026/27

• Review your salary strategy: Model the tax and NI position for your specific situation alongside your accountant.
• Check Employment Allowance eligibility and claim through your payroll software for 2026/27.
• Ensure payroll software uses the correct NI category letter for directors and handles the annual earnings period calculation correctly.
• Review benefits in kind: List all BiKs you provide and begin preparing for mandatory payrolling from April 2027.
• Keep dividend extraction in line with available profits — do not overdraw.
• If you are approaching the £100,000 income threshold, consider pension contributions to protect the personal allowance.
• Confirm that your P11D (for 2025/26 benefits) is filed by 6 July 2026, and Class 1A NI is paid by 19 July 2026 (or 22 July if paying electronically).

Need help with your director payroll for 2026/27?

Every director’s situation is different. Our team can model the most tax-efficient salary and dividend strategy for your limited company, ensure your payroll is fully compliant, and help you prepare for the changes coming in April 2027. Get in touch today for a tailored review.