Optimal Director Salary 2025/26: What's Changed?
The 2025/26 tax year brings significant changes to employer National Insurance that every director needs to understand. Here's everything you need to know.
Key Changes at a Glance
Secondary Threshold Lowered
£9,100 → £5,000
Employer NI now kicks in much earlier
Employer NI Rate Increased
13.8% → 15.0%
Higher rate on salary above threshold
What This Means for Directors
The lowered Secondary Threshold means your company will start paying employer NI on salary above £5,000 per year (previously £9,100). Combined with the rate increase from 13.8% to 15%, this represents a notable increase in employment costs.
The Optimal Salary for 2025/26
For most directors of small limited companies, the recommended salary remains at the Primary Threshold of £12,570. Here's why:
- ✓No employee NI: You don't pay any employee National Insurance on salary up to £12,570
- ✓No income tax: The salary matches the Personal Allowance, so no income tax is due
- ✓State Pension protection: Earnings above the Lower Earnings Limit (£6,500) count as a qualifying year
- ✓Corporation Tax deduction: The full salary is an allowable business expense
Employer NI Cost Comparison
Let's compare the employer NI cost on a £12,570 salary between tax years:
2024/25
£479
(£12,570 - £9,100) × 13.8%
2025/26
£1,136
(£12,570 - £5,000) × 15.0%
Increase of approximately £657 per year
Employment Allowance Consideration
If your company is eligible for Employment Allowance (currently £10,500), the employer NI is effectively offset. This means:
- •You could pay a higher salary without the company incurring NI costs
- •Most sole-director companies are not eligible for Employment Allowance
- •Use our calculator to see which scenario applies to you
Summary
For 2025/26, the optimal director salary for most small company directors remains £12,570 (the Primary Threshold). While employer NI costs have increased, this salary level still offers the best balance of:
- • Zero employee National Insurance
- • Zero income tax
- • Full State Pension credit
- • Maximum Corporation Tax deduction
2025/26 Key Thresholds
| Threshold | 2024/25 | 2025/26 |
|---|---|---|
| Lower Earnings Limit (LEL) | £6,396 | £6,500 |
| Secondary Threshold (ST) | £9,100 | £5,000 |
| Primary Threshold (PT) | £12,570 | £12,570 |
| Upper Earnings Limit (UEL) | £50,270 | £50,270 |
| Employer NI Rate | 13.8% | 15.0% |
| Employment Allowance | £5,000 | £10,500 |
Sources
Disclaimer: This guide is for informational purposes only and does not constitute financial or tax advice. Please consult a qualified accountant for advice specific to your circumstances.