For the 2025/26 tax year, the optimum director’s salary—commonly recommended for single-director limited companies with no other employees—balances the thresholds for Income Tax, National Insurance contributions (NICs), and Corporation Tax efficiency.
🧾 Optimum Director’s Salary (2025/26)
Salary Option 1: £9,100 per annum (£758.33 per month)
- This is below the Primary Threshold for NICs—no employee NICs due.
- Also below the Secondary Threshold—no employer NICs due.
💼 The Optimum Director’s Salary for 2025/26
At Augustus Payroll, we understand the importance of tax efficiency—especially for owner-managed businesses where every penny counts. That’s why we’re sharing the latest guidance on the most tax-efficient director’s salary for the 2025/26 tax year.
📊 What is the Optimum Director’s Salary?
For the 2025/26 tax year, the optimum salary for most directors is £12,570 per annum, which breaks down to £1,047.50 per month or £241 per week. This amount allows directors to take full advantage of their personal allowance while minimising National Insurance liabilities.
👔 How Should Directors Be Paid?
Directors who are also shareholders typically have the flexibility to draw income through:
- A salary,
- Dividends, or
- A combination of both.
For most, a salary of £12,570 is the sweet spot. Any income above this should ideally be taken as dividends, assuming company profits and reserves allow.
🧾 Why £12,570?
This figure is based on the alignment of the Income Tax Personal Allowance and the Primary National Insurance Threshold, both set at £12,570 for 2025/26. Here’s how the National Insurance thresholds break down:
| Threshold | Amount |
|---|---|
| Lower Earnings Limit (LEL) | £6,500 per annum |
| Primary Threshold (Employee) | £12,570 per annum |
| Secondary Threshold (Employer) | £5,000 per annum |
- Earning above the LEL secures a qualifying year towards your state pension.
- Staying below the Primary Threshold means you don’t pay employee NI.
- A salary of £12,570 qualifies you for the state pension without needing to make employee contributions.
🤔 Isn’t That Just the Personal Allowance?
Yes. Since July 2022, the personal allowance and employee NI thresholds have been aligned at £12,570—making this amount ideal from both an income tax and NI standpoint.
💰 Why Not Pay £0?
While it’s possible for directors to forego a salary and instead take dividends, a salary of £12,570 is a corporation tax-deductible expense—unlike dividends. This saves corporation tax of between £2,388 and £3,331, depending on your rate (19% to 26.5%).
Additionally, paying this salary secures another qualifying year for your pension, which may not be achieved through dividends alone.
🚫 When Might a £0 Salary Be Better?
In cases where a director has other forms of income (e.g. from pensions, rentals, or another job) or is past state pension age, a nil salary could be advisable. In such cases, it’s best to seek tailored advice—we’re happy to assist.
📉 Why Not Pay More Than £12,570?
Once a director’s salary exceeds £12,570, employee NI and income tax apply, often making additional pay through dividends more tax-efficient. Despite the corporation tax savings, the combined NI and PAYE rates usually outweigh dividend tax.
📈 When Might a Higher Salary Be Justified?
There are a few scenarios where a higher salary could make sense:
- The director is under a contract of employment and must be paid at least the National Minimum Wage.
- The company has insufficient profit reserves to issue dividends.
- The director is over state pension age and/or the business can benefit from the Employment Allowance (which offsets employer’s NI).
⚖️ £5,000 Salary vs £12,570 Salary
With the secondary threshold now at £5,000, some may consider this lower salary to avoid employer NI. However, our recommendation remains £12,570:
- Employer NI of £1,136 is due on the portion above £5,000.
- But the corporation tax saving on this extra salary outweighs the NI cost.
| Corporation Tax Rate | Tax Saving |
|---|---|
| 19% | £1,654 |
| 26.5% | £2,307 |
🧾 Claiming the Employment Allowance
The Employment Allowance for 2025/26 is now £10,500 (up from £5,000). If eligible, this allowance can fully offset the £1,136 employer’s NI on the director’s salary.
To claim, the business must employ more than one person (i.e., not be a sole-director company). If eligible, the savings on the £12,570 salary are increased by between £1,438 and £2,006 depending on your tax rate.
👤 What About Sole Directors?
Sole directors without other employees are not eligible for the Employment Allowance, meaning they will pay the £1,136 in employer NI. Despite this, paying the £12,570 salary still offers better tax efficiency compared to £5,000 due to the higher corporation tax relief.
💡 Top Tip: Understanding NI Calculation Methods
There are two approaches for calculating NI for directors:
- Monthly basis – employer NI kicks in immediately.
- Annual basis – NI doesn’t apply until the salary exceeds £5,000 cumulatively (around month 5 if paid evenly).
Using the annual method helps delay NI payments until later in the tax year.
🤝 Could Hiring Help?
If you’re a sole director, hiring an additional employee (such as a partner assisting with admin or bookkeeping) may make you eligible for the Employment Allowance, potentially saving £1,136 in NI. This must be handled carefully to comply with employment law.
📆 What Was the 2024/25 Optimum Salary?
The optimum salary for 2024/25 was also £12,570, as the thresholds remained unchanged.
✅ PAYE Registration & Payroll Filing
Paying yourself a salary requires PAYE registration and timely payroll submissions to HMRC. For assistance, see our guide on How to register as an employer or get in touch with us directly—we’re here to help.
🧮 Salary vs Dividends: The Ideal Mix
After drawing a salary of £12,570, directors can take £500 in tax-free dividends, then up to £37,200 at 8.75%. This keeps your total income within the basic rate tax band of £50,270.
Above this, dividends are taxed at:
- 33.75% (higher rate)
- 39.35% (additional rate)
With the right structure, a director earning £50,270 in total income could pay only £3,255 in personal tax—an effective tax rate of just 6.5%.
📌 Final Thoughts
At Augustus Payroll Services, we recommend that most directors pay themselves a salary of £12,570 in 2025/26. This remains the most tax-efficient route for the majority, particularly when combined with dividend payments.
Every individual’s circumstances differ, and bespoke tax planning is key. If you’d like tailored advice to determine the most efficient structure for your situation, please contact our expert team—we’d be delighted to assist.
If you want more information – Please get in touch!
For more information visit: https://www.gov.uk/guidance/director-information-hub-income-tax-and-national-insurance
If you require support, contact us today
