Recommended directors salaries for limited companies 

Before last year’s Autumn Budget, the tax benefit of a remuneration structure involving a small salary and dividends for Limited Company owners was becoming increasingly narrow. However, next month’s increase to National Insurance has supported that a small salary and balance as dividends structure is actually increasing in tax efficiency. 

There is, however, an added complexity. Most company owner directors taking a salary of £1,047 per month will find that their company needs to pay £1,135 in Employers’ National Insurance over the course of the tax year. If you have employees, you may already be paying PAYE and NI most months, so this won’t be much of an administrative issue. However, for smaller limited companies where only the owner directors are on the payroll, this may be the first time they need to report and pay monthly amounts to HMRC. 

Why are we recommending a Director’s Salary that causes Employers NI? 

From 6 April 2025, employees earning over £5,000 per year (£416 per month) will cause their employers to be charged 15% Employers’ National Insurance on earnings above this amount. 

However, an employee must earn at least £9,096 per year to qualify for a National Insurance “stamp” that counts as a contributing year towards their State Pension. Therefore, a director’s salary should not fall below this level, or they risk losing a year’s worth of State Pension contributions. At this level of income, Employers’ National Insurance of £614 will be due. 

It is important to note that salary and Employers’ National Insurance attract Corporation Tax savings, reducing tax liabilities by between £1,845 and £2,573, depending on the business’s marginal Corporation Tax rate. There is no individual tax payable on a salary at this level for business owners with total taxable income below £100,000 and no other employment income. The net tax saving is £1,959. 

Maximising the salary to use the full personal allowance of £12,570, as we suggest, will save between £2,604 and £3,631 in Corporation Tax, resulting in an overall net saving (after the higher NI cost) of up to £2,496. While this structure does involve some tax being paid, it remains the most tax-efficient option. 

For businesses with no other employees, this means that from August 2025, there will be a monthly National Insurance bill. Directors’ NI is calculated on a cumulative basis, unlike non-director employees. This means that the salary in the first four months of the tax year will utilise the £5,000 NI-free band, delaying when the cost kicks in. 

Maximising your income up to the Basic Rate tax Band in the 2025-26 Tax year results in: 

This assumes that you have no other income using up your Basic Rate tax Band which would impact the calculations, such as interest, rental income etc. Dividend earnings above and beyond these levels will incur tax at 33.75% up to a total taxable income of £100,000.

The above is also based on the assumption that your business has the post tax profits to sustain dividends at this level.   

If you have any doubts or other considerations that need factoring in, we recommend that you contact your Client Manager, or book a 1-2-1 with us for specific and tailored advice.