Accountant For A Limited Company

What is the Optimum Director's Salary 2025/26?

The optimum director's salary for 2025/26 is usually £12,570, matching the personal allowance and securing a qualifying state pension year. Sole directors without other employees sometimes prefer £5,000 to avoid employer National Insurance, or £6,500 to meet the Lower Earnings Limit. The right figure depends on Employment Allowance eligibility, Corporation Tax relief and whether a higher salary is needed for mortgage or visa evidence.

By Jordan Macey MAAT Reviewed by Noor Fiaz Updated 16 Apr 2026 8

Key takeaways

The optimum director's salary for 2025/26 sits at £12,570, £6,500 or £5,000, with the best choice driven by Employment Allowance eligibility and whether a state pension qualifying year is needed.
Employer's National Insurance applies at 15% on salary above the £5,000 secondary threshold in 2025/26, so a £12,570 salary triggers around £1,135 of employer NIC where Employment Allowance is unavailable.
The Lower Earnings Limit of £6,500 is the minimum salary that counts as a qualifying year toward the state pension, without requiring any actual NI to be paid.
A single-director company with no other staff paid above the £5,000 secondary threshold cannot claim the £10,500 Employment Allowance, making salary planning tighter than for multi-employee companies.
Every pound of director's salary is deductible against Corporation Tax at 19% or 25%, so a £12,570 salary typically saves at least £2,388 in company tax.

How to Be Tax Efficient as a Company Director in 2025/26

Rachel Reeves’ October budget for 2024 brings some significant updates that will impact both personal and business taxes. One of the most discussed changes is the lowering of the Employer’s National Insurance threshold. This means that businesses will now have to pay National Insurance contributions on employee earnings that exceed £5,000, down from the previous limit of £9,100.

Limited company directors often choose to pay themselves a combination of salary and dividends to keep their tax bills in check. By setting a low salary - usually at the National Insurance threshold, they can minimize tax liabilities while still being eligible for state benefits. The rest of their income typically comes in the form of dividends, which are taxed at lower rates compared to salaries.

However, with the new changes to the National Insurance threshold and tax bands, directors will need to rethink how they take money out of their companies. This reduction in the Employer’s National Insurance threshold could lead to higher overall costs if their salary goes beyond the new limit.

In this article, you can read our salary guidance on optimum directors salary for 2025/26.

Key Tax Changes Announced in the October 2024 Budget

Before diving into our recommendations for the year ahead, it’s useful to understand why this change has an impact and so to provide full insight, let’s take a look at the other important thresholds relevant to this:

Tax Free Personal Allowance - Frozen at £12,570
Employee’s National Insurance Threshold - Frozen at £12,570
Lower Earnings Limit (LEL) – Frozen at £6,500 (important for state pension qualification)
Tax Free Dividend Allowance – Frozen at £500
Employment Allowance - £10,500 (offsets Employer NI for eligible companies)
Employer’s NI Rate - 15% (Applies to earnings above £5,000 unless covered by the Employment Allowance)
Employer’s National Insurance Secondary Threshold – Reduced to £5,000

As we can see, for the first time in a long time, the threshold in which you’ll begin to pay Employers National Insurance is now below the threshold needed to maintain your National Insurance record for state pension qualification. This means that for a lot of small businesses, the director will have to start paying some Employers NI to continue to obtain eligibility for state pension.

Why Should Directors Take a Salary?

Opting to pay yourself a salary has a number of benefits:

Maximises Your Tax-Free Personal Allowance – The personal allowance for 2025/26 is £12,570. By taking a salary up to this amount, you can keep it completely tax-free.
Enables You to Qualify for State Pension and Benefits – Earning above the Lower Earnings Limit can qualify you for your state pension and benefits.
Lowers Corporation Tax – Since salary counts as a business expense, it reduces your company’s taxable profits, which ultimately leads to lower corporation tax.
Keeps National Insurance (NI) Costs Low – A well-planned salary structure can help keep your NI contributions low, allowing you to retain more of your earnings.

What’s the Optimum Director's Salary 2025/26?

TLDR - following the changes to Employers NI, we would recommend an increase in directors salaries to £12,570 per annum to maintain NI records and maximise tax relief (assuming no other sources of income outside of the company)

Your ideal salary depends on whether you are the sole director or have other employees on the payroll. Here are the three most tax-efficient director's salary options for 2025/26:

1. If you are a sole director with no other employees

If you are the sole director in your company, you have three choices for your salary.

Option 1. £5,000 annual salary (£416.66 per month) – less admin

This salary aims to avoid any arising tax/NI charges. However, you do not obtain a qualifying year towards your state pension and your Corporation Tax relief is reduced compared to prior years.

Option 2. £6,500 annual salary (£541.66 per month) – somewhere in the middle

This salary aims to maintain your NI record by meeting the Lower Earnings Limit. Your company will incur a small Employers National Insurance liability (£225) and your Corporation Tax relief will be less than in prior years.

Option 3. £12,570 annual salary (£1,047.50 per month) – maximum savings (GoForma’s recommendation)

This salary maximises your tax-free personal allowance. Your company will incur a higher Employers National Insurance liability (£1,135.50) but this will be covered even more so by the higher Corporation Tax relief. This is the most tax efficient option.

2. If you have 2 or more paid employees including directors

If your company has two or more directors/employees receiving a salary, your decision for your director’s salary level is easier.

A company with two or more employees/directors receiving salary above £5,000 are eligible to utilise an allowance called ‘Employers Allowance’. This is where the first £10,500 of Employers NI is not payable.

With this in mind, our recommendation would be for each director to be paid a salary in line with the tax-free personal allowance of £12,570 per annum.

Qualifying for a State Pension

Your salary must meet the Lower Earnings Limit (LEL) of £6,500 to qualify for state pension for the 2025/26 tax year.

If you earn less than £6,500, that income won’t count as a qualifying year, meaning you won’t get any state pension credits.
On the flip side, if you earn £6,500 or more, that counts as a full year towards your state pension, which is great for securing your future benefits.

By keeping your salary above the LEL, you can keep building your state pension entitlement without having to pay extra National Insurance.

Dividends: A Tax-Efficient Alternative

After you’ve set your salary, dividends can be a clever way to enhance your income while keeping your tax bills in check.

Why Opt for Dividends?

No National Insurance Contributions (NICs) – Unlike your salary, there are no NICs on dividends.
Paid After Corporation Tax – Dividends are paid out from the company’s profits after corporation tax is applied.
£500 Tax-Free Dividend Allowance – You can benefit from first £500 of dividends completely tax-free.
Lower Tax Rates - If your total income from dividends is up to £50,270, you'll only pay an 8.75% tax on that, which is a lot more favorable than the tax rates on salaries.

By combining a well-thought-out salary with dividends, you can effectively lower your tax liability, making this approach one of the smartest ways for director's take home pay.

What Do I Need to Do Next?

Single Director Companies

If you already have a salary running through your business in line with our current recommendation (£758 per month) and are happy to continue with our recommendation, you do not need to do anything – we will automatically raise your salary to £12,570 (£1,047.50 per month). Please adjust your salary payments for April 2025 onwards.

If you do not have a salary currently, or have a specified salary outside of our prior recommendation (£758 per month), this will continue in line with the current amount. Should you wish to change this or are unsure on what to do, please reach out to us.

Multi Director/employee Companies

If you already have a salary running through your business in line with our current recommendation (£1,047.50 per month) and are happy to continue with our recommendation, you do not need to do anything. This will automatically continue.

If you do not have a salary currently, or have a specified salary outside of our prior recommendation, this will continue in line with the current amount. Should you wish to change this or are unsure on what to do, please reach out to us.

Final Take on Optimum Directors Salary 2025/26

If you're looking for the most tax-efficient way to pay yourself as a director in 2025/2026, a combination of salary and dividends is the way to go. The ideal salary for UK directors can be either £5,000, £6,500, or £12,570, depending on how many employees you have and your personal choice. The rest of your income can come from dividends, to benefit from the lower dividend tax rates.

For most owner-managed businesses, a salary of £12,570 is recommended. While the tax savings might not be as significant as in previous years due to the rise in employer National Insurance, this amount still tends to be the best option for many directors. We suggest that any additional income be taken as dividends.

By opting for a salary of £12,570, your company can save at least £2,388 in corporation tax.

If a director earns £50,270 through a mix of salary and dividends, they would face personal taxes of about £3,255. This results in an effective tax rate of roughly 6.5% on that £50,270 income.

It's important to note that these figures are based on several assumptions and may not apply to every director. The most tax-efficient salary really depends on your company's specific situation. Factors like the number of directors and employees, eligibility for the employment allowance, and the corporation tax rate your company pays all play a role in determining the right balance of salary and dividends.

If you're uncertain about the best strategy for your situation, don’t hesitate to reach out to our limited company accountant. At GoForma, we’re here to help you customise your salary and dividend strategy for maximum efficiency.

Frequently asked questions

What is the optimum director's salary for 2025/26?

For most limited company directors in 2025/26, the optimum salary is £12,570, matching the personal allowance so no Income Tax or employee National Insurance is due. The salary is also fully deductible against Corporation Tax at 19% or 25%. Sole directors with no other staff who cannot claim Employment Allowance may instead take £5,000 to avoid employer NIC, or £6,500 to secure a state pension qualifying year.

Why choose £12,570 over £6,500 or £5,000 as a director's salary?

A £12,570 salary uses the full personal allowance and delivers the largest Corporation Tax deduction, typically saving around £2,388 at the 19% rate. It does trigger about £1,135 of employer's NIC at 15% on the slice above the £5,000 secondary threshold, but the CT saving outweighs that cost. £6,500 meets the Lower Earnings Limit for state pension purposes, while £5,000 avoids employer NIC entirely with less CT relief.

What is the National Insurance primary threshold for directors in 2025/26?

The Class 1 primary threshold for 2025/26 is £12,570, the point at which directors start paying employee National Insurance on salary. Below that figure no employee NIC is due. Between £12,570 and the upper earnings limit of £50,270, employee NIC is charged at 8%, with 2% payable on earnings above £50,270. This threshold is aligned with the personal allowance, which is why a £12,570 salary avoids both Income Tax and employee NIC.

What is the employer's NI secondary threshold and when does it apply?

The secondary threshold for 2025/26 is £5,000, down from £9,100 in 2024/25. Employer's National Insurance at 15% is payable on any salary above this threshold, including the director's own pay. The combination of a lower threshold and a higher 15% rate, from 6 April 2025, raised the cost of paying a full personal allowance salary to around £1,135 in employer NIC per director where Employment Allowance cannot be claimed.

Why can't a single-director company claim Employment Allowance?

HMRC blocks Employment Allowance where the only employee earning above the £5,000 secondary threshold is a director. This rule excludes most one-person limited companies. To qualify, at least one other employee must be paid above £5,000 and the previous year's employer NIC bill must be under £100,000. Where eligible, the allowance covers up to £10,500 of employer NIC, making the £12,570 salary choice materially cheaper for multi-employee companies.

Does a £6,500 salary count as a qualifying year for the state pension?

Yes. Earnings at or above the Lower Earnings Limit of £6,500 in 2025/26 give a qualifying year toward the UK state pension, even though no National Insurance is actually paid on salary between the LEL and the £12,570 primary threshold. A salary under £6,500 does not credit a qualifying year, so sole directors choosing a £5,000 salary need to plan separately for state pension gaps through voluntary Class 3 contributions.

How does a director's salary reduce Corporation Tax?

Salary and any related employer NIC are allowable business expenses, so both are deducted from company profits before Corporation Tax is calculated. At the 19% small profits rate, a £12,570 salary saves £2,388 in CT, and at the 25% main rate it saves £3,143. That relief typically outweighs the employer NIC cost, which is why £12,570 remains the most tax-efficient salary for most directors even with the new 15% employer NIC rate.

When does a higher director's salary make sense?

Taking a salary above £12,570 can be worthwhile when earnings evidence matters more than pure tax efficiency. Mortgage lenders, rental agencies and UK visa sponsors often assess salary more favourably than dividends. Directors also benefit from a higher salary when making large pension contributions based on relevant UK earnings, or when profits are low and dividends cannot be declared lawfully. In those cases, the extra Income Tax and NI cost is accepted as a trade-off for credibility or flexibility.