Directors’ Salaries 2025-2026

With the new tax year almost upon us you may be asking the question “What is the most tax efficient way to pay myself from my Company in 2025-26?”  There were a three key changes announced in the Autumn budget which affect national insurance paid by employers in 2025-26:

  • The starting point at which an employer pays national insurance for a staff member will be reduced from £9,100 to £5,000 per annum
  • The rate of employers’ national insurance will rise from 13.8% to 15%
  • The Employers Allowance (the credit given by HMRC to offset the cost of employers’ NI) will rise from £5,000 to £10,500 per annum

These changes will impact almost all small businesses and lead to a fresh consideration of how best owner-managed businesses should remunerate directors and shareholders.  We have detailed below our thoughts and recommendations on three different scenarios for small businesses and profit extraction for the upcoming tax year.  Identify your particular scenario and review our commentary.  Feel free to get in touch if you have further queries.

  1. TWO OR MORE DIRECTORS ON THE PAYROLL

This scenario covers businesses that have two Directors receiving salaries through the company’s payroll, whether they be the only employees or where there are also other employees.  In this scenario we would recommend each Director receive a salary of £12,570 per annum or £1,047.50 per month.  The reasons for this are as follows:

  • Each director will use up their full personal allowance
  • Though the company will be required to pay employers national insurance, this will usually be fully offset by the employers allowance meaning no cost to the Company.  Where the employers allowance £10,500 is being fully utilised to offset the NI of other employees, the company will have NI to pay, but this is reduced by corporation tax relief for the company.
  • The directors will receive a national insurance credit towards their state pension

If one of the directors has another source of earned income such as another salary or self-employed income then we would recommend getting in touch with us so we can look at their individual circumstances and advise accordingly.

  1. ONLY ONE DIRECTOR ON THE PAYROLL PLUS OTHER EMPLOYEES

This scenario covers the situation where there is just one Director on the payroll, but there is at least one other employee earning more than £417 per month.  In this scenario we would recommend the Director receives a salary of £12,570 per annum or £1,047.50 per month.  This is for the same reasons as for scenario 1.

  1. THE ONLY EMPLOYEE ON THE PAYROLL IS A DIRECTOR

This scenario covers the situation where there is just one Director on the payroll and no other employees earning £542 or above.  In this scenario we recommend the director is paid at least £542 per month.  The significant change in 2025-26 is that your Company will suffer monthly employers’ national insurance of £18.75 (Based on a monthly salary of £542) which you will need to pay over to HMRC.

Only employers with multiple employees earning £542 or above are eligible for the employer’s allowance which would offset this cost.  If there is another person involved in the business who could be employed, then it may be beneficial to consider this.  The reason it is important for the one director to be paid at least £542 is to ensure that they will receive a national insurance credit towards their state pension.

If your company is moving into this situation where employers NI will become due each month, we recommend establishing a Direct Debit with HMRC, details of which can be found at https://www.gov.uk/pay-paye-tax/direct-debit.