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The Ultimate Director's Salary for 2025/26

What is the most tax-efficient salary for directors this year?

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If you're a director of a UK limited company, working out how much to pay yourself in 2025/26 can save you a significant amount in tax. With changes to National Insurance thresholds and employer contributions, it's more important than ever to get your salary right.

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Below is a simple guide to help you decide the best salary level for your situation.

Key Changes in 2025/26

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  • Employer's National Insurance (NI) has increased to 15% (was 13.8%)

  • The threshold for paying employer's NI has dropped to £5,000 (was £9,100)

  • Employment Allowance has increased to £10,500, but only applies if your company has more than one employee (or director on payroll)

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Option 1: You're the Only Director, No Other Employees

If you're the only person on your company's payroll, you won't be able to claim Employment Allowance. In this case, you have a few options:

✅ £12,570 Salary

  • Fully uses your tax-free personal allowance

  • No income tax, but employer's NI will be around £1,135

  • The cost can be offset by corporation tax savings

✅ £6,500 Salary

  • No income tax or employee NI

  • Small amount of employer NI (£225 approx.)

  • Qualifies for a state pension year

✅ £5,000 Salary

  • No tax or NI for you or the company

  • BUT it doesn't count towards your state pension

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Option 2: You Have Other Employees or More Than One Director

If you qualify for Employment Allowance:

✅ £12,570 Salary

  • No income tax

  • Employer NI covered by the allowance

  • Maximises corporation tax relief

  • Counts as a full qualifying year for state pension

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This is usually the best all-round choice for most small limited companies with staff.

What About Dividends?

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Once you've chosen a salary, the rest of your income can usually be taken as dividends:

  • First £500 is tax-free

  • Then taxed at:

    • 8.75% (basic rate)

    • 33.75% (higher rate)

    • 39.35% (additional rate)

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A combination of salary and dividends is still the most tax-efficient way to pay yourself as a director.

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Need Help Working It Out?

At Hiclass Accounting, we work with directors every day to help them get paid in the most tax-efficient way. If you'd like tailored advice for your business, just get in touch. We'd be happy to help.

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Get in touch today to book your free consultation.

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#DirectorsSalary #TaxEfficiency #202526TaxYear #HiclassAccounting #SmallBusinessSupport

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