If you’re a director of a limited company, you probably pay yourself a mix of salary and dividends to keep taxes low. For the last few years, the best salary for tax efficiency has been £9,096 per year, because it gave you maximum Corporation Tax relief while avoiding PAYE tax, National Insurance, and still qualifying you for the State Pension.
However, things are changing in 2025/26.
From April 2025, employer’s National Insurance (NIC) will be charged at 15% on earnings above £5,000. This means that many directors will now have to pay some employer’s NIC.
The good news is that directors pay NIC on a cumulative basis—so for most, this means the extra NIC will only be due in the final three months of the payroll year.
What Are Your Options?
Here’s a simple breakdown of different salary options and what they mean for your tax bill:
| Salary | Dividends | Employer’s NIC to Pay | Tax Relief for Your Company | Tax on Dividends | Net Tax Relief |
| £9,096 (Same as Before) | £3,474 | £614 | £1,845 | £304 | £927 |
| £5,000 (Avoids NIC, No State Pension) | £7,570 | £0 | £950 | £662 | £288 |
| £6,500 (Lower NIC, Some Tax Relief) | £6,070 | £225 | £1,278 | £531 | £522 |
| £12,570 (Uses Full Personal Allowance, Higher NIC) | £0 | £1,136* | £2,604 | £0 | £1,469 |
(*Employer’s NIC is reduced to £0 if you can claim the Employment Allowance.)
What This Means for You
- If you want to qualify for the State Pension but keep taxes low, we are recommending a salary of £12,570 even though this will mean paying employer’s NIC of £1,136
- If you want to avoid NIC completely, you can take a salary of £5,000, but you won’t qualify for the State Pension.
- If you want to reduce tax but still get some savings, a salary of £6,500 could work, as you’ll only pay a small amount of employer’s NIC (£225).
The Bottom Line
For most directors, a salary of £12,570 is the best choice—even with the new NIC charge. It keeps your tax bill low while still giving you access to the State Pension. But if you want to completely avoid NIC, consider £5,000 instead bearing in mind this does not qualify for State pension entitlement.
Every situation is different, so if you’re unsure, get in touch and we’ll work out the best option for you!