The Most Tax-Efficient Director’s Salary for 2025/26

As a director, you are legally a separate 'entity' from your limited company, even if you are its sole shareholder. That means you can’t simply take profits from the company like a sole trader would.

Instead, you need to decide how to pay yourself in the most tax-efficient way, typically a combination of a low salary and dividends.

Let’s break down how this works, what you need to consider, and exactly how much salary to take in the 2025/26 tax year to keep more of your hard-earned money.

👩‍💼 Taking a Salary as a Director

When you’re a director of a limited company, you are both an employee and an employer of your own company. That’s important because Salaries attract both employee and employer National Insurance Contributions (NICs). Dividends, on the other hand, don’t attract NICs at all.

However, salaries also bring valuable benefits:

• Regular income throughout the year

• Qualifying payments towards your State Pension

• And crucially, Corporation Tax relief

💰 Corporation Tax Relief

Salaries, including the employer’s National Insurance, are deductible business expenses, which reduce your company's Corporation Tax bill. For small businesses with profits under £50K in 2025/26, that’s 19% relief on what you pay.

So while a higher salary might seem costly upfront, the tax relief offsets some of that cost, making it more efficient than you might think.

So, what's the best salary to take?

Let’s break it down using the 2025/26 tax rates:

	Sole Director £5000	Sole Director £6500	Sole Director £12570	2+ Directors £12570
Employee NIC	£0	£0	£360.24	£360.24
Employer NIC	£0	£225	£1135.50	£0 (Covered by EA)
CT Relief (19%)	£950	£1277.75	£2604.05	£2388.30
Net Tax Saving	£950	£1052.75	£1468.55	£2388.30
NI Credit Earned?	❌ No	✅ Yes	✅ Yes	✅ Yes

✅ Why £12,570 Is Often the Sweet Spot

As you can see from the table, the most tax-efficient salary is £12,570, especially if you're eligible for the Employment Allowance. The Employment Allowance allows employers to reduce their employer NIC bill by up to £10,500 in the 2025/26 tax year. To qualify, your company must:

• Have more than one director on payroll, or

• Employ at least one staff member

  
  

If you meet either condition, you can fully offset employer NIC on the £12,570 salary, making this the most tax-efficient option overall.

If you can't claim the employment allowance, it may still be worth paying yourself a salary of £12,570, as you still benefit from higher tax savings.

Please note that this table does not take into account income from other sources.

Paying yourself as a director is a balancing act between tax efficiency, pension planning, and company cash flow. The right amount depends on your circumstances, especially if:

• You have other sources of income

• You’re not drawing a salary all year

• You’re planning to pay significant dividends

📞 Need help deciding what’s right for you? Contact us today so we can help you plan your finances while you focus on your business.