What is a tax-efficient salary for 2026/27 as a limited company director?

For limited company directors, the same question pops up every tax year: "How can I make my salary as tax-efficient as possible?"

And ahead of the new tax year 2026/27, perhaps understandably so, writes Lauren Monks, a director at Dolan Accountancy.

Moreover, contractor limited company directors are now actually being recommended to use the extra time afforded by last week's thin Spring Statement 2026 to get across their 2026/27 remuneration strategy.

Spring Statement 2026 isn't the only reason to set your limited company director salary now

We think there's another reason to get at least your salary figure down way before the new tax year strikes.

Smaller companies in the UK have been hit pretty hard recently.

There has been a rise in employer National Insurance Contributions, an increase in dividend tax rates, and operating costs are continuing to point upwards.

With a further increase in dividend taxation biting from the start of next month, limited company directors must get the most out of their take-home pay. So with the new tax year from April 6th 2026 looming, let's look at what a contractor directing their own limited company needs to know about paying the most tax-efficient salary from 2026/27.

What three areas are key to paying yourself as a limited company director?

Working through your own limited company is one of the most tax-efficient self-employed routes, as there are so many different ways to maximise your take-home pay.

These include three key areas: Salary, Expenses and Dividends.

Let's start with salary, not least so we can pinpoint the 'best' amount to pay yourself as a wage in 2026/27.

1. Salary

By paying yourself a set salary as a director each month, you not only have a stable income at a fixed amount, but it can also be offset against your company profits, helping to reduce your Corporation Tax liability to HMRC.

But this isn't the only 'tax-efficiency' consideration when creating your set salary figure.

Beware the National Insurance threshold

Most directors will pay themselves up to, but not over, the threshold at which National Insurance (NI) applies, with the effect that they take home more of their pay.

Next, directors will want to make sure the salary figure is above the lower earnings limit, with the effect that their earnings still count as a qualifying year towards the State Pension.

When is there no tax and no NI to pay?

At the time of writing (2025/26), the National Insurance allowance is £125 a week for the lower earnings limit. And at this level, there is no tax and no NI for an employee to pay, even though it still offers the benefit of the state pension.

Also at present, be aware that £242 a week is the so-called 'Primary Threshold,' meaning that at this amount, National Insurance kicks in.

How much salary in 2026/27 is tax-efficient?

So we recommend that, for optimum tax-efficiency and benefits, limited company directors set their salary at just below the NI primary threshold — at £12,570 — as this sum is the tax-free Personal Allowance.

Helpfully for contractors who want to plan now, National Insurance thresholds for 2026/27 are set to remain at 2025/26 levels (as is the Personal Allowance).

For further reference, employers will pay NICs at a rate of 15% above earnings of £5,000 in 2026/27, and employee contributions will follow the standard Class 1 thresholds (which are likewise frozen at 2025/26 levels).

2. Expenses

Since our launch in 2017 as a specialist accountant for contractors, we've endorsed being diligent and proactive in claiming expenses because it's a way you can, in effect, 'get money back.'

Claiming allowable expenses also helps reduce your tax bill at the end of each year.

And you'll be pleased at this, because as a limited company director, you'll likely find there are a lot more expenses you need to pay out for compared to other self-employed professionals, especially if you work remotely.

What are six common contractor expenses?

Allowable expenses for contractor limited company directors typically include:

3. Dividends

When a limited company makes a profit after paying all its expenses and taxes, it can either keep the money in the business or distribute some of it to its shareholders. Such a distribution, or payment, is called a dividend.

It's very common for a limited company director to pay themselves using a combination of salary and dividends.

Why do contractors prefer dividends over salary?

As dividends do not attract National Insurance, this makes them a more tax-efficient method of paying yourself via your company.

While the first £500 of dividend income (per year) is tax-free, once this figure has been exceeded, dividend tax rates kick in.

Despite this, the HMRC rates on dividends are still lower than salary tax rates. As a result, dividends are usually more tax-efficient in comparison to paying yourself solely through a set salary.

What are dividend tax rates for 2026/27?

From April 6th 2026, dividend tax is to increase by 2%.

Dividend rates for 2026/27 are as follows:

So the question that contractors and limited company directors might be asking themselves is:

Should contractors change dividends to pay the same level of tax?

While it's most certainly worth looking at the dividend/salary ratio you pay yourself, and then tweaking it to ensure the best financial outcome, contractors do need to consider the possible implications of 'changing it up' on dividends unnecessarily.

Let's look at some numbers to see whether altering dividend payments in 2026/27 might be worth it — or not.

Contractor dividend example, with a tax-efficient salary built in

For example, imagine taking the tax-efficient salary that we recommend for 2026/27 of £12,570 (i.e. up to the National Insurance threshold), and then topping up your annual income with £37,700 in dividends.

Currently, the basic rate on dividends is at 8.75%, putting the tax owed to HMRC at £3,255.

From April 6th 2026, under the new dividend rate (10%), the amount owed to HMRC will rise to £3,999, adding £744 to your tax bill for taking home the same amount of money.

Under the new dividend rates, where does just paying the extra tax make sense?

So, to pay the same level of tax as you did in 2025/26 (£3,255), you would need to reduce your dividends in 2026/27 from £37,700 to £30,779, giving you a tax liability of £3,255.

This would mean reducing your income by £6,921 to pay the same in tax.

Well, it would work out much better — financially — to take home the extra dividends, and just pay the extra hit of £744.

If you did decide to take the extra £6,921 in 2025/26 to avoid the tax in 2026/27, you would push your dividends to £44,621, which would result in putting yourself in a higher tax rate and paying an extra £2,335!

Is there a one-size-fits-all solution for tax efficiency?

In the case explained above, the added NI implications wouldn't be worth it. However, it's important to note that every situation is different and will depend on a number of factors unique to your company.

This is where professional, bespoke tax advice is essential for ensuring you're getting the best financial outcome from your business.

What makes a 'good' contractor accountant?

When hiring an accountant, it's important to look for a professional who understands the ins and outs of contractor taxation. Look for a reliable company with a good reputation; preferably one that offers fixed packages, so you know exactly what you're paying for, and that you don't get an unexpected bill at the end of the year.

What duties should a contractor accountant perform?

As a bare minimum, a contractor accountant for your limited company should carry out these four duties:

TL;DR: 'What is a tax-efficient salary for 2026/27 as a limited company director?'

A contractor accountant should be able to advise you about what a tax-efficient salary might look like for your limited company for the 2026/27 tax year, starting April 6th 2026, too.

We recommend that £12,570 is the 'best' amount for a director's annual wage.

But there's more than a few factors to consider, not least dividends, which we're preparing a guide on exclusively for ContractorUK — to be published shortly — as dividends are the other half of a tax-efficient remuneration strategy for 2026/27.