Optimal Director Remuneration 2025/26
Frequently Asked Questions
Most tax advisers recommend paying a salary equal to the personal allowance (£12,570). From April 2025, this triggers employer NIC of £1,135 (at 15% on the £7,570 above the secondary threshold of £5,000).
The Lower Earnings Limit (£6,396 in 2025/26) is the minimum salary needed to earn a qualifying National Insurance year for state pension and other benefits, without paying NIC. Some directors prefer this to minimise employer NIC.
The dividend allowance is £500 (reduced from £1,000 in 2023/24 and £2,000 prior). Dividends above £500 are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate).
Small profits rate of 19% applies on profits up to £50,000. The main rate of 25% applies on profits over £250,000. Marginal relief applies between £50,000 and £250,000 (effective marginal rate of 26.5%).
If you have a spouse with no income, splitting salary and dividends between directors can be efficient. A higher salary may be preferred if you need full NIC credits or if the company has insufficient distributable profits for dividends.
Yes, if they do genuine work for the business at a commercial rate. Paying a family member a salary that is disproportionate to their contribution would be challenged by HMRC as income splitting.
Company pension contributions are a deductible business expense, reducing corporation tax. They're not subject to income tax or NIC for the director. This makes employer pension contributions one of the most tax-efficient ways to remunerate.
A DLA records money lent to or from a director to the company. Overdrawn DLAs (director owes money to company) may trigger a 33.75% Corporation Tax charge (Section 455 TCGA) if not repaid within 9 months.
Directors can receive fees (not subject to PAYE if paid as fees to a self-employed person), but HMRC scrutinises this. If the director is also an employee, their income is generally treated as PAYE regardless of how it's described.
From April 2025, the Employment Allowance is £10,500 per year. Companies where the sole employee is also a director are not eligible. If you have other employees or multiple directors, EA eligibility should be checked.
Directors can borrow from the company via the DLA interest-free (up to £10,000 benefit-in-kind threshold). Loans above £10,000 attract a BIK charge at the official rate of interest (current 2.25%).
In 2025/26, paying yourself the full personal allowance (£12,570) as salary still triggers employer NIC (£1,135.50). Some directors prefer to pay just below the secondary threshold (£5,000) or at LEL (£6,396) to minimise employer NIC.