Part of our complete guide to salary & dividends.
Why the figure isn't £0 or your full personal allowance
Most director salary advice collapses into one of two bad defaults, pay nothing and take all dividends, or pay up to the personal allowance. Neither is usually optimal. See our broader guide on paying yourself tax-efficiently for the full salary/dividend picture, this article focuses specifically on finding the right salary figure itself.
The logic behind the sweet spot
- A salary of £0 saves on employer National Insurance entirely, but misses out on building a qualifying year for the State Pension, which requires NI contributions or credits
- A salary set at the secondary Class 1 NI threshold typically secures the state pension qualifying year while triggering little to no employer National Insurance
- A salary pushed up to the full personal allowance usually means paying employer's NI on the portion above the secondary threshold, which is often less efficient than taking that extra amount as dividends instead
Use our salary vs dividend calculator to find the exact optimal figure for your situation, rather than relying on a generic number that may not fit your circumstances.
Key point: The optimal figure moves every tax year as NI thresholds and dividend rates change, see our note on dividend tax rates for 2026/27. A salary level that was optimal two years ago is not automatically still optimal now.
Why the state pension angle matters
It's easy to focus purely on this year's tax bill and miss the longer-term cost of under-contributing to National Insurance. A salary set too low to count as a qualifying year can mean gaps in your state pension record that are expensive or impossible to fill retroactively. This is one reason £0 salary, while tax-efficient on paper this year, is rarely the right call.
Want your exact optimal salary worked out? Book a free consultation, we'll model your specific numbers rather than giving you a one-size-fits-all figure.
Frequently asked questions
Why not just pay a £0 salary and take everything as dividends?
A small salary within the National Insurance thresholds costs the company little to nothing while building your state pension qualifying years, something dividends alone don't do, so £0 usually leaves value on the table.
Why not pay a salary up to the full personal allowance?
Above the secondary Class 1 National Insurance threshold, the company starts paying employer's NI on the salary, which is often less efficient overall than taking the equivalent amount as dividends instead.
Does the optimal salary level change every year?
Yes, National Insurance thresholds and dividend tax rates both move with the tax year, so the specific optimal figure should be rechecked annually, not set once and left alone.
Is this the same for every director?
The general principle is similar for most single-director companies, but the exact best figure depends on other income, existing NI records, and company profit levels, which is why a personalised calculation beats a generic rule of thumb.