Optimising Your Director’s Salary for 2025/26

As a director of a UK limited company, structuring your salary tax-efficiently is key.

Key Changes from April 2025

• Employer’s NIC Increase – Rising from 13.8% to 15%.

• Lower Secondary Threshold – Dropping from £9,100 to £5,000, meaning more NIC costs for employers.

• Employment Allowance Boost – Increasing from £5,000 to £10,500 for eligible businesses.

Recommended Salary Strategies

Option 1: £12,570 per Year (£1,047.50 per Month) – Most Tax-Efficient

✅ Fully uses the tax-free Personal Allowance, meaning no Income Tax.
✅ Maintains State Pension eligibility.
✅ Reduces Corporation Tax as a deductible expense.

❌ Triggers Employer’s NIC (~£1,135.50 annually), but this may be offset if eligible for Employment Allowance.

Best for: Directors with employees who can claim Employment Allowance to reduce NIC costs.

Option 2: £6,500 per Year (£541.66 per Month) – Low-Tax Alternative

✅ Keeps State Pension eligibility.
✅ Minimises NIC liabilities.

❌ Doesn’t fully use the Personal Allowance, missing tax savings.
❌ Still incurs a small Employer’s NIC charge (~£225 per year).

Best for: Sole directors without employees who want to minimise NIC costs.

What If You’re a Sole Director?

Even without Employment Allowance, a £12,570 salary is usually the best option. The Corporation Tax savings and full use of the Personal Allowance typically outweigh the Employer’s NIC cost.

Balancing Salary and Dividends

Once your salary is set, dividends can be a tax-efficient way to increase income:

• No NICs on dividends.
• First £500 is tax-free.
• Up to £50,270 in total income is taxed at just 8.75%.

Final Thoughts

For most directors, a £12,570 salary remains the most tax-efficient choice. It allows you to:

✔ Fully use your tax-free allowance.
✔ Reduce Corporation Tax.
✔ Stay eligible for state benefits.

Not sure what’s best for your situation? Speak to a tax professional. CCM can help tailor your salary and dividend strategy for maximum efficiency.