For the 2025/26 tax year, the "Optimal Salary" question has become significantly more complex. In previous years, the advice was simple: Pay up to the Primary Threshold (£12,570).
This year is different.
The government has reduced the Secondary Threshold (Employer NICs) from £9,100 down to £5,000. At the same time, the Employer NIC Rate has risen to 15%.
This creates a "Tax Trap" between £5,000 and £12,570 where you pay Employer NICs, even though you pay no Employee NICs.
This guide explores the three main strategies:
To understand the strategy, you must know the numbers:
| Threshold | Annual Amount | What Happens Here? | | :--- | :--- | :--- | | Secondary Threshold (ST) | £5,000 | Employer NICs (15%) start. | | Lower Earnings Limit (LEL) | £6,396 | You get a "Qualifying Year" for State Pension (without paying NIC). | | Primary Threshold (PT) | £12,570 | Employee NICs (8%) start. | | Personal Allowance (PA) | £12,570 | Income Tax (20%) starts. |
We want to extract money from the company while minimizing the combined total of:
(Traditionally the most popular)
Who includes this? Companies with 2+ employees (or Husband/Wife teams) eligible for the Employment Allowance.
You pay yourself £12,570.
The Employment Allowance Magic: If you are eligible, the Employment Allowance covers the £1,135 bill. The cost to the company is £0. Plus, the full £12,570 is a deductible expense, saving you £2,388 - £3,142 in Corporation Tax (depending on your rate).
Verdict: ✅ THE WINNER (If Employment Allowance Eligible).
(The new contender for 2025/26)
Who includes this? Sole Directors who cannot claim Employment Allowance.
If a Sole Director pays £12,570, they must physically pay the £1,135 Employer NIC bill to HMRC. Is it worth paying £1,135 in NIC to save ~£2,400 in Corporation Tax?
The £5,000 Option:
The Major Downside: £5,000 is BELOW the Lower Earnings Limit (£6,396).
Verdict: ⚠️ RISKY. Only use if you have a full State Pension record already or other income sources (e.g. Pension/Rental) that use up your allowances.
(The Sweet Spot?)
Who includes this? Sole Directors wanting State Pension credits.
You pay yourself exactly the Lower Earnings Limit: £6,396.
Verdict: A middle ground, but often mathematically inferior to taking the hit on Strategy A.
This is the most effective tax planning tool for typical family businesses.
| Salary | CT Saving (19%) | Employer NIC Cost | Net Benefit | State Pension? | | :--- | :--- | :--- | :--- | :--- | | £12,570 | £2,388 | -£1,135 | +£1,253 | ✅ Yes | | £9,100 | £1,729 | -£615 | +£1,114 | ✅ Yes | | £6,396 | £1,215 | -£209 | +£1,006 | ✅ Yes | | £5,000 | £950 | £0 | +£950 | ❌ No |
(CT Saving is based on the salary being a deductible expense).
Analysis: Even though paying £12,570 incurs a £1,135 NIC bill, the Corporation Tax saving (at 19%) outweighs it.
What is the most tax-efficient salary for a director in 2025/26? For most directors, the sweet spot is £12,570 per year. This utilizes your full Personal Allowance. Although it triggers some Employer NICs (£1,135), the Corporation Tax savings on the gross salary usually outweigh this cost. If you have the Employment Allowance, it is undeniably the best option.
Should I take £9,100 or £12,570 salary as a company director? In previous years, £9,100 was popular to avoid Employer NICs. However, with the Secondary Threshold dropping to £5,000 in 2025/26, the £9,100 sweet spot no longer exists. You will pay NICs on anything above £5,000 anyway, so you might as well take the higher £12,570 salary to save more Corporation Tax.
How to pay yourself as a director? You must register as an employer with HMRC and run a robust payroll (RTI). You cannot simply transfer cash and call it salary at the end of the year. It must be reported on or before payday.
Disclaimer: This guide assumes standard tax codes (1257L). Always run your specific numbers through our calculator.