Deciding on the most tax-efficient director’s salary 2025/26 is crucial for financial planning and compliance. The 2025/26 tax year introduces key changes, most notably the reduction of the Employer’s National Insurance (NI) threshold from £9,100 to £5,000. These adjustments mean directors must reassess their salary strategies to remain tax-efficient and take full advantage of available allowances.
Key Financial Thresholds for 2025/26
Personal Allowance: £12,570
Employer’s NI Threshold: £5,000
Employee’s NI Threshold: £12,570
Lower Earnings Limit: £6,500 (qualifies for State Pension credits)
Dividend Allowance: £500
Best Director’s Salary 2025/26: Top Options
1. £5,000 per year (£416.66/month)
Aligns with the new Employer’s NI threshold, avoiding Employer’s NI contributions.
Below the Lower Earnings Limit, meaning it does not qualify for State Pension credits.
Maximises company funds available for dividend payments.
Qualifies for corporation tax relief on the salary paid.
2. £6,500 per year (£541.66/month)
Meets the Lower Earnings Limit, ensuring State Pension eligibility.
Incurs a small Employer’s NI liability of around £225 per year.
Corporation tax relief outweighs the NI cost, making it a tax-efficient choice.
3. £12,570 per year (£1,047.50/month)
Uses the full Personal Allowance, meaning no income tax is due.
Triggers Employer’s NI contributions of approximately £1,135.50 per year.
Provides the maximum corporation tax relief.
Ensures State Pension eligibility.
Salary Strategy for Companies with Multiple Directors or Employees
£12,570 per year (£1,047.50/month)
Eligible for the £10,500 Employment Allowance, which offsets Employer’s NI contributions.
No Employee’s NI contributions payable.
Maximises corporation tax relief.
Ensures State Pension qualification.
Key Considerations When Choosing Your Salary
Cash Flow: Higher salaries increase NI costs but improve corporation tax relief.
State Pension: Ensure your salary is at least £6,500 to qualify for pension benefits.
Employment Allowance: If your company employs staff, you may be eligible for NI savings.
Additional Income: Consider other earnings that may impact your tax position.
Dividend Strategy: The £500 dividend allowance means careful planning is required for tax efficiency.
Dividends: A Tax-Efficient Alternative
Dividends remain an effective way for directors to take income from their company. However, with the reduced £500 dividend allowance, balancing salary and dividends carefully is key to minimising tax liabilities.
What’s the Best Option for You?
Choosing the right salary depends on your personal and business circumstances, including:
Whether you are a sole director or have employees.
Your company’s cash flow and financial strategy.
Your personal tax position and future financial goals.
The need to maintain State Pension contributions.
Get Professional Advice
Determining the best salary structure requires careful planning. At Daykin Scott Accountants, we provide expert guidance to help you optimise your tax efficiency while ensuring compliance with HMRC regulations.
For tailored advice on your salary strategy, contact us today.
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