Why This Year Is Different: NI Changes Explained
Recently we’ve seen HMRC introduce some key Employers’ National Insurance changes for 2025/26, especially for limited company directors. While the £12,570 salary remains optimal for many, being the sole person on payroll now means extra NI to pay – and that changes things. So what Is the most tax-efficient director’s salary for the 2025/26 Tax Year? In previous tax years this has been a relatively easy question to answer, but the changes to employers’ national insurance now make it a far harder question to answer.
Read more: Should I be a Limited Company or a Sole Trader?
The Best Director’s Salary If You’re Not Alone on Payroll
If you have more than one person on payroll, and the other person is earning at least £417 per month, the most tax efficient salary for a limited company director will be £12,570. This is the same as previous tax years and nothing will change.
However, if as the director you are the only person on the payroll things get more complicated.
What If You’re the Only Person on Payroll?
As a company director being the only person on a payroll getting a salary of £12,570 now comes with an employers national insurance bill of £1,135.50.
To mitigate this, we have a few options:
Lower Salary Option – Is £6,504 a Better Fit?
If your company profit is under £30,000 it may be worth reducing your salary to £6,504 for the year. At this salary level, there will be employers’ national insurance payable of £225.60. There is no way to avoid this bill but with limited profits it can be the best option.
Want to Stick with £12,570? Add Someone to Payroll
However, if your profit is higher than this and you want to avoid the £1,135.50 employers national insurance bill then you would need to add someone onto your payroll.
This could be someone you’ve been paying freelance but want to bring in house. It could also be a family member that is going to work within the business.
They would need to be paid at least £417 per month for at least one month per financial year. They must complete work for the business, be paid at least minimum wage for the hours worked and be paid at a comparable market rate.
Things to Keep in Mind Before Hiring
There is a lot to consider when hiring an employee and we are not HR experts so can’t advise outside of the tax implications and running the payroll for you, however, what we can suggest:
- Understand the legal implications
- Get employment contracts in place
- Factor in other costs like pension contributions
Read more: Tax planning tips for small businesses
Final Thoughts – What’s The Most Tax-Efficient Director’s Salary For You?
Sadly, we cannot make the final call on the best way forward for your business in this situation, it will be down to what you feel is best for your business.
Need help working out the best approach for your business? We’re happy to help with payroll advice for small businesses, the most tax-efficient director’s salary and all things tax. Get in touch today.
