Setting the 2025/26 salary

Paying Yourself Tax-Efficiently as a Director (2025/26)

If you run your own company, you’ll need to take money out of it to use personally. One of the most tax-friendly ways to do this is to take a small salary and top it up with dividends.

This also helps you build up your National Insurance record, which counts towards your State Pension.

Important Dates and Salary Levels for 2025/26

To get a full State Pension, you need 35 qualifying years. If you have at least 10 years, you’ll get a partial pension.

To make 2025/26 count as a qualifying year, your salary needs to be at least £6,500. That’s based on earning £125 a week for 52 weeks – the lower earnings limit for National Insurance.

If your salary is between £6,500 and £12,570, you don’t pay any employee National Insurance, but it still counts as a qualifying year.

Please see:  https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company

What About Employer National Insurance?

The Employment Allowance helps businesses cover their employer (secondary) National Insurance bills. But:

  • If your company only has one employee who’s also a director, you can’t claim it.
  • If your company has at least two employees, paid at least £96 a week, you can claim it (up to £10,500 in 2025/26).

For companies that can’t claim the Employment Allowance, paying a director £6,500 will mean an employer’s NI cost of £225.

If the allowance is available, this cost is covered so you can pay £6,500 without any employer NI to pay.

What’s the Best Salary to Pay?

If you want to be tax-efficient:

  • With Employment Allowance: You can pay a salary up to the tax-free personal allowance of £12,570 with no tax or NI.
  • Without Employment Allowance: You’ll still save tax by paying £12,570, even though you’ll pay 15% NI on income above £5,000.

It’s usually not worth paying more than £12,570 unless you get a higher personal allowance (e.g. through Marriage Allowance).

Please see another An Accounting Gem blog:  https://www.aag-accountants.co.uk/march-2025-the-end-is-nigh-5-april-2025/

 

/by