How to Pay Yourself Smartly as a Director in 2025/26
Paying yourself correctly as a director could save you thousands....
Smart strategies to legally minimise NIC costs and protect your income.
As a director, understanding how National Insurance works can save you thousands. Here’s how to structure your pay to minimise NICs legally in the 2025/26 tax year.
How NICs Work for Directors
Unlike standard employees, directors often have their NICs calculated using an annual earnings basis.
This method means your NICs are smoothed across the full tax year, not calculated weekly or monthly.
Directors pay:
- Employee NICs on salaries above the Primary Threshold.
Employer NICs are payable by the company on salaries above the Secondary Threshold (unless exempt).
Key NIC Thresholds for 2025/26
Threshold | Amount (Annual) | NIC Rate |
Primary Threshold (Employee NICs) | £12,570 | 12% up to £50,270, then 2% above |
Secondary Threshold (Employer NICs) | £5,000 | 15% above this level |
Understanding these thresholds is vital for planning.
Smart Salary Planning
✅ Salary recommendation: £12,570 per year.
Why?
- No employee NICs payable at this level.
- Qualifies you for NIC credits (important for the State Pension).
- No Income Tax on salary.
Employer NICs payable only on salary above £5,000 — but can sometimes be offset by Employment Allowance.
Employer NIC Exemptions Explained
✅ Employment Allowance offers up to £5,000 per year to offset employer NICs.
Who qualifies?
- You must have at least one other employee earning more than £123 per week.
- Sole director-only companies cannot claim it.
If eligible:
You can pay a slightly higher salary (~£13,000 or more) without suffering employer NIC costs.
Always double-check eligibility with your accountant or payroll provider.
Practical Case Study
Case Study: Director with No Employees
Sarah runs a marketing consultancy.
- She is the sole employee and director.
- No Employment Allowance available.
- She sets her salary at £12,570.
✅ Result:
- No Income Tax.
- No employee NICs.
- Minimal employer NICs (small amount over £5,000 secondary threshold).
Dividends paid for additional income.
Case Study: Director with Employees
Mark owns a digital agency employing two staff.
- Eligible for Employment Allowance.
- Sets salary at £13,000 to fully maximise NIC savings.
- No employer NICs payable due to £5,000 offset.
✅ Result:
- Higher salary deduction for Corporation Tax.
- NIC savings using allowance.
Still uses dividends to top up income efficiently.
FAQs
1. Can directors avoid NICs completely?
Not always, but smart salary planning can minimise both employee and employer NICs.
2. Should I pay myself just under thresholds?
No — it’s better to use your full personal allowance for salary to gain NIC credits for the State Pension.
3. How do I know if my company qualifies for Employment Allowance?
If you have two or more employees earning over £123/week, you likely qualify. Always check specific criteria on GOV.UK or consult your accountant.
Final Thoughts
Director pay planning isn’t just about Income Tax and Dividends — smart National Insurance strategies can deliver serious savings.
Make sure you review your eligibility for Employment Allowance and optimise your salary structure for 2025/26.
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