PAYE (Pay As You Earn):<\/strong> This is Income Tax paid on your salary, it is the main tax employees pay in the UK. PAYE is automatically calculated and reported by your employer, being your limited company, via payroll. For 2026\/27, the standard Personal Allowance remains \u00a312,570<\/strong>, with the basic rate band remaining \u00a337,700<\/strong> for England, Wales and Northern Ireland.<\/p>\n\n\n\n NIC (National Insurance Contributions):<\/strong> Although NIC and PAYE are calculated differently, NIC is often viewed as another form of tax on earnings. Employee\u2019s NIC is deducted from pay, while Employer\u2019s NIC is an additional cost to the company. It contributes towards certain state benefits, including the State Pension. For 2026\/27, the main employee NIC rate remains 8%<\/strong> between the Primary Threshold and Upper Earnings Limit, and 2%<\/strong> above that. Employer NIC remains 15%<\/strong> above the Secondary Threshold.<\/p>\n\n\n\n Salary:<\/strong> Receiving a salary through your company is generally a tax-deductible expense for the business, reducing its Corporation Tax liability.<\/p>\n\n\n\n Dividends:<\/strong> The other main way directors extract funds from their company is through dividends, which are paid out of post-tax profits.<\/p>\n\n\n\n PAYE and NIC thresholds apply to income above the Personal Allowance. The Employer\u2019s NIC only applies to earnings above the \u00a35,000 secondary threshold.<\/strong><\/p>\n\n\n\n The table above shows Employee\u2019s (Primary) Class 1 NIC deducted from pay. There is also an Employer\u2019s (Secondary) Class 1 NIC charge payable by the company on salaries above the relevant threshold, which is \u00a35,000<\/strong>, taxed at 15%<\/strong> for 2026\/27. The Lower Earnings Limit has increased to \u00a36,708<\/strong> for 2026\/27, while the Primary Threshold remains \u00a312,570<\/strong>.<\/p>\n\n\n\n Example (General Employee):<\/strong> For an employee earning \u00a330,000<\/strong> per year:<\/p>\n\n\n\n Annual gross salary: \u00a330,000.00<\/strong><\/p>\n\n\n\n Employer\u2019s NIC: (\u00a330,000 – \u00a35,000) \u00d7 15% = \u00a33,750<\/strong><\/p>\n\n\n\n Total cost to employer: \u00a333,750.00<\/strong><\/p>\n\n\n\n To receive a salary, your company needs a PAYE scheme registered with HMRC. We handle this registration for you as standard.<\/p>\n\n\n\n Taking a salary is a tax-deductible expense for your company. The optimal salary balances tax efficiency, considering Income Tax, NIC and Corporation Tax, with administrative simplicity and State Pension contributions. Based on 2026\/27 rules, here are the main options.<\/p>\n\n\n\n Why:<\/strong> This level uses your full tax-free Personal Allowance of \u00a312,570<\/strong>. While it triggers Employer\u2019s NIC for single-director companies, the Corporation Tax saving on the salary generally makes it the most tax-efficient overall strategy for extracting this amount. The monthly PAYE threshold and Primary Threshold are both \u00a31,048<\/strong>, which aligns with this annual salary recommendation in practice.<\/p>\n\n\n\n Single Director Companies:<\/strong><\/p>\n\n\n\n Employer\u2019s NIC payable by the company: \u00a31,135.50<\/strong> for the year. Companies with 2+ Directors\/Employees:<\/strong><\/p>\n\n\n\n The Employment Allowance, up to \u00a310,500<\/strong>, typically covers the Employer\u2019s NIC liability on salaries at this level for eligible companies. State Pension:<\/strong> This salary is above the Lower Earnings Limit, so it counts as a qualifying year for the State Pension. For 2026\/27, the LEL is \u00a36,708<\/strong> per year.<\/p>\n\n\n\n Why:<\/strong> This salary is below the thresholds for both Employee\u2019s and Employer\u2019s NIC, meaning no NIC payments or associated administration are required. Because the monthly Secondary Threshold is \u00a3417<\/strong>, a monthly salary of \u00a3416<\/strong> remains below the employer NIC trigger.<\/p>\n\n\n\n Considerations:<\/strong><\/p>\n\n\n\n It is usually less tax-efficient if you plan to draw further funds, such as dividends, compared to the \u00a312,570<\/strong> salary.<\/p>\n\n\n\n Crucially, this salary is below the Lower Earnings Limit of \u00a36,708<\/strong> for 2026\/27. Therefore, this does not<\/strong> count as a qualifying year towards your State Pension.<\/p>\n\n\n\n Regardless of the salary chosen, your company must file a Real Time Information, or RTI, return with HMRC each month payroll is run, even if the tax and NIC due is \u00a30<\/strong>. As part of our service, we prepare and file these returns for you. HMRC\u2019s employer guidance for 2026\/27 continues to require payroll reporting through PAYE.<\/p>\n\n\n\n (1)<\/strong> If you choose the \u00a312,570<\/strong> salary as a single director, Employer\u2019s NIC of \u00a31,135.50<\/strong> will be due for the year. We will calculate this and advise you quarterly on the amounts and deadlines, typically 22 July, 22 October, 22 January and 22 April<\/strong>.<\/p>\n\n\n\n (2)<\/strong> If you choose the \u00a34,992<\/strong> salary, no PAYE or NIC payments will be due.<\/p>\n\n\n\n (3)<\/strong> If you are a multi-director or employee company eligible for the Employment Allowance and choose the \u00a312,570<\/strong> salary, typically no Employer\u2019s NIC payments will be due as the allowance covers the liability.<\/p>\n\n\n\n (4)<\/strong> If you choose a salary different from these options, we will calculate any PAYE or NIC due and advise you accordingly.<\/p>\n\n\n\n We are often asked if a director\u2019s salary counts towards the State Pension.<\/p>\n\n\n\n To count as a qualifying year<\/strong>, your earnings must be at or above the Lower Earnings Limit<\/strong> for National Insurance, which is \u00a36,708<\/strong> in 2026\/27.<\/p>\n\n\n\n The recommended salary of \u00a312,570<\/strong> per year does<\/strong> meet this requirement.<\/p>\n\n\n\n The alternative salary of \u00a34,992<\/strong> per year does not<\/strong> meet this requirement.<\/p>\n\n\n\n Most people need 35 qualifying years<\/strong> for the full new State Pension, or 30 years<\/strong> for the old basic State Pension depending on age. You do not need to actually pay NIC contributions for a year to qualify, you just need earnings above the LEL.<\/p>\n","protected":false},"excerpt":{"rendered":" Understand how PAYE and NIC tax bands work for the 2026\/27 tax year. Key Terms and Rates PAYE (Pay As You Earn): This is Income Tax paid on your salary, it is the main tax employees pay in the UK. PAYE is automatically calculated and reported by your employer, being…<\/p>\n","protected":false},"author":1,"comment_status":"open","ping_status":"closed","template":"","format":"standard","meta":{"footnotes":""},"ht-kb-category":[44],"ht-kb-tag":[],"class_list":["post-646","ht_kb","type-ht_kb","status-publish","format-standard","hentry","ht_kb_category-2026-27-tax-guides"],"yoast_head":"\nTypical Full-Time Employee PAYE & NI Rates (2026\/27)<\/h3>\n\n\n\n
Earnings Band<\/th> PAYE Rate<\/th> Employee\u2019s NI Rate<\/th> Employer\u2019s NI Rate<\/th><\/tr><\/thead> \u00a30 to \u00a312,570<\/td> 0%<\/td> 0%<\/td> 0% (up to \u00a35,000**)<\/td><\/tr> \u00a312,571 to \u00a350,270<\/td> 20%<\/td> 8%<\/td> 15% (above \u00a35,000**)<\/td><\/tr> \u00a350,271 to \u00a3125,140<\/td> 40%<\/td> 2%<\/td> 15%<\/td><\/tr> Over \u00a3125,140<\/td> 45%<\/td> 2%<\/td> 15%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Employers NI<\/h2>\n\n\n\n
Registration for PAYE and NIC<\/h2>\n\n\n\n
Choosing Your Director\u2019s Salary for 2026\/27<\/h2>\n\n\n\n
Recommended Salary: \u00a312,570 per year (\u00a31,047.50 per month)<\/h4>\n\n\n\n
No Employee\u2019s NIC or PAYE is due on this salary.
Requires quarterly payments of the Employer\u2019s NIC, and we will advise you.<\/p>\n\n\n\n
Result: Usually \u00a30 Employer\u2019s NIC<\/strong> to pay.<\/p>\n\n\n\nAlternative Salary (Admin Simple): \u00a34,992 per year (\u00a3416 per month)<\/h4>\n\n\n\n
Monthly RTI Returns<\/h2>\n\n\n\n
Paying PAYE and NIC<\/h2>\n\n\n\n
Eligibility for the State Pension<\/h2>\n\n\n\n