Director salary planning in 2025/26

With the new tax year underway and changes to Employer’s National Insurance Contributions (NIC) now in effect, many directors of owner-managed businesses are evaluating the most tax-efficient salary to take.

Below we explore the latest changes and how they impact directors’ salary planning in 2025/26.

Employer’s NIC: what’s changed?

From 6 April 2025 the rate of employer NIC increased by 1.2% from 13.8% to 15% and the threshold at which employers start paying employers NIC will be reduced from £9,100 per employee per year to £5,000 per employee per year.

However, eligible employers will see an increase in the annual Employment Allowance which increased from £5,000 to £10,500. This means that Employers NIC will become payable on liabilities in excess of £10,500 per year. The allowance is also available to businesses whose employers NIC liability exceeds £100,000 (where previously these businesses would not have qualified for the allowance).

For many company directors, a salary of £12,570 remains a suitable and tax-efficient level, whether or not the company qualifies for the Employment Allowance.

However, it’s important to note that where the Employment Allowance isn’t available (such as for companies with a single director payroll), this salary will now attract Employer’s NIC of £1,135.50. While this is a material increase in cost, the overall tax efficiency often remains favourable thanks to corporation tax relief.

National Insurance credits

Historically, directors could receive a salary that allowed them to accrue NI credits (preserving their entitlement to state pension and benefits) without actually paying any NI. That is no longer possible.

Here’s what’s changed:

• Lower Earnings Limit: £6,500 (increased from £6,396 in 2024/25)
• Secondary Threshold: £5,000 (decreased from £9,100 in 2024/25)
• Primary Threshold: £12,570 (no change compared to 2024/25)

This means that employer NIC is now payable for any salary above £5,000, whereas NI credits only begin to accrue from £6,500.

What about small companies and single director payrolls?

For small businesses with only one director on payroll, the Employment Allowance doesn’t apply. In these cases, employers must now factor in NIC costs above the £5,000 salary mark.

While a £12,570 salary results in a NIC liability, it usually offers the highest net income when considering overall remuneration planning for the director, making it the most attractive option from a personal tax efficiency perspective.

However, this doesn’t include any additional payroll processing costs, which could influence the final decision for some companies.

Larger companies: more flexibility with Employment Allowance

For companies paying corporation tax at the main rate, and where the Employment Allowance is available, it may be worth considering salaries above £12,570. In these cases, Employer NIC liabilities can potentially be offset by the allowance, helping to maintain a tax-efficient outcome.

How can we help?

While £12,570 remains a solid benchmark for many, particularly where the Employment Allowance is available, these decisions should be made on a case-by-case basis, factoring in your company’s specific circumstances.

If you’re unsure how these changes affect your business or would like tailored advice on setting director salaries, contact our specialist tax team on 01903 234094.