The number one question we are getting asked at the moment is; What salary should I take from my limited company from April and what is the impact of the changes in employers national insurance?
The changes announced in the Autumn Budget have made this decision harder than in previous years and here is why.
Understanding the changes for 2025/26
The most significant change affecting director’s salaries is the reduction in the Employers National Insurance threshold from £9,100 to £5,000. Any salary paid above £5,000 per year will incur a National Insurance charge of 15%. Employers National Insurance Allowance increases to £10,500 per year but this not available to companies with only one director.
Thresholds to consider in 2025/26
• Personal Allowance remains at £12,570
• Employees National Insurance Threshold remains at £12.570
• Employers National Insurance Threshold reduced to £5,000
• Lower Earnings Limit (the point where you receive a qualifying year for State Pension) £6,500
• Dividend Allowance remains at £500
Options for Director’s Salaries
For sole director companies
If you are the only director in your company and you have no employees, your options are;
1. Salary of £5,000 (£416.66 per month)
- Paid at the new Employers NI Threshold
- No National Insurance Contributions will be paid
- Below the Lower Earnings Limit so will not count towards State Pension entitlement
- Corporation tax relief on the £5,000 only (for a company paying tax at 19% the saving against corporation tax is £950 for 25% tax payers this increases to £1,250)
2. Salary of £6,500 (£541.66 per month)
- Meets Lower Earnings Limit so counts as a Qualifying Year for State Pension purposes
- Employers National Insurance contributions will be payable of £225 per year
- Corporation tax relief will be available on the salary plus national insurance which outweighs the cost of the extra NI cost (for a company paying tax at 19% the saving against corporation tax is £1,278 for 25% tax payers this increases to £1,681)
3. Salary of £12,570 (1047.50 per month)
- Pay utilises the full personal allowance
- No income tax liability
- Employers National Insurance contributions will be payable of £1,125.50
- Meets Lower Earnings Limit so counts as a Qualifying Year for State Pension purposes
- Corporation tax relief will be available on the salary plus national insurance which outweighs the cost of the extra NI cost (for a company paying tax at 19% the saving against corporation tax is £2,602 for 25% tax payers this increases to £3,424)
Tax planning solution
As a company with a sole director payroll, you are not eligible for the Employment Allowance, however by adding a partner, child, parent etc onto payroll you would then be eligible to claim the Employment Allowance and avoid paying the Employers National Insurance. But you would have to justify that the employee is actually doing some form of work for your company and ensure that remuneration is reasonable and aligns with the “arm’s length principle”.
Companies with more that one director or with employees
If your company has employees or more than one director on the payroll then the impact of these changes on the salary level for directors are not as impactful as the company will still qualify for the small employer national insurance allowance. In these circumstances we would recommend
- Directors salary of £12,570 (£1,047.50 per month)
- Eligible for increased Employment Allowance of £10,500 (Employers National Insurance payments are not due until NI ers exceeds £10,500)
- No Tax or Employees National Insurance due
- Meets Lower Earnings Limit so counts as a Qualifying Year for State Pension purposes
- Corporation tax relief on the £12,570
Conclusion
The right salary structure depends on your specific circumstances. Factors to consider include;
- Are you a sole director company or do you have employees or multiple directors?
- Your personal tax position
- Your State Pension qualification needs
- Your cashflow requirements
- Your overall remuneration strategy
Our goal is to ensure that our client’s affairs are as tax efficient as possible. As such for the 2025/26 tax year, we recommend increasing a director’s salary to £12,570 per year, in most cases.
While this information provides a general overview, every situation is different and as your accountants we are best placed to advise on your individual circumstances.
Contact us if you have any questions or concerns regarding these matters.
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