If you've recently received your first PAYE bill reflecting the new Employers National Insurance rates, you're probably feeling it. And you wouldn't be the first director to look at that figure and wonder whether it's time to rethink director pay.
It's a completely reasonable question. So let's give you a straight answer.
This brings us back to the key question: How Much Salary Should I Pay Myself as a Director.
Following our Budget update earlier this year, we advised that the recommended director salary should remain at the full personal allowance of £12,570 per year. Now that the new rates are landing in real bills, we want to revisit this clearly and confidently, because the maths still backs up that advice.
From April 2025, the Employers National Insurance threshold dropped from £9,100 to £5,000, and the rate increased from 13.8% to 15%. In practical terms, for a director on a standard salary with no Employment Allowance available, this means an additional £657 per year in Employers NI.
That's a real cost, and we understand why it's prompting questions about how much salary you should pay yourself as a director. But an increase in one line of your tax bill doesn't automatically mean a change in strategy is the right move. You need to look at the whole picture.
The personal allowance salary works because of how multiple tax reliefs interact. Here's why reducing your salary would actually leave you worse off overall.
Your salary up to £12,570 is completely tax free. There's no income tax and no Employee's NI on a salary at this level. Every penny of it comes home to you.
Dividends don't fill the gap. Some directors assume that taking a lower salary and replacing it with dividends achieves the same outcome. It doesn't. Reducing your salary doesn't increase your tax-free income — it just shifts where that income comes from while reducing the Corporation Tax relief your company receives on the salary payment.
Corporation Tax relief is the key. This is where the numbers really make the case. Your company gets Corporation Tax relief on the full salary AND on the Employers NI it pays. At current rates, the total Corporation Tax relief on a £12,570 director salary sits between £2,605 and £3,632, depending on your company's marginal tax rate. The maximum Employers NI cost on that salary is £1,136. That still leaves a net tax benefit of between £1,469 and £3,632 per director — even with no Employment Allowance.
Put simply, a director keeping their salary at £12,570 is between £519 and £1,172 better off than one who reduces to £5,000, when you compare like-for-like tax extraction. The lower figure applies at the 19% Corporation Tax rate, and the higher figure kicks in within the 26.5% marginal band.
This one often gets missed in the numbers conversation, but it matters. Do you have to pay yourself a salary as a director? Not legally, but there's a strong reason to do so beyond tax efficiency.
A salary of £5,000 per year would fall below the qualifying threshold for National Insurance contributions, meaning it would not count as a qualifying year towards your State Pension. A salary at £12,570 keeps that qualifying year intact. Over time, those years add up to a meaningful difference in your State Pension entitlement.
We've had a few clients ask whether the Employment Allowance can wipe out the Employers NI liability entirely. Here's the honest answer.
Where the only person on the payroll earning above the £5,000 Secondary NI threshold is a single director, the Employment Allowance is not available. It's one of HMRC's longstanding rules.
However, if your company has more than one person earning above that threshold, for example, two working directors, or a director alongside a genuine employee, you may well be eligible. If that's your situation, it's worth a conversation with us, because it could remove the Employers NI cost entirely.
The short answer is: no. Reducing your director pay to £5,000 might look appealing at first glance because it avoids Employers NI. But once you factor in the lost Corporation Tax relief, the unchanged personal tax position, and the State Pension implications, you end up worse off.
A salary at the full personal allowance of £12,570 continues to:
If you're still asking yourself how much salary to pay yourself as a director in light of these changes, the answer remains the same as it was before April and we've done the work to prove it.
Ultimately, the answer to How Much Salary Should I Pay Myself as a Director depends on your full company structure and tax position.
We know that tax changes can feel unsettling, especially when you're seeing the impact show up directly in your bills. At Simply Accounts, we keep a close eye on everything that affects your take-home pay and your company's tax position, so you don't have to.
Whether you want to talk through your current salary and dividend structure, check whether your company qualifies for the Employment Allowance, or simply get peace of mind that your numbers are working as efficiently as possible, we're here for that conversation.
Get in touch with the Simply Accounts team today and let's make sure your director pay is set up in the most tax-efficient way for the year ahead.
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