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What is the optimal salary for limited company directors in 2025-26?

In the upcoming financial year which starts in April, there are several significant changes that will impact how limited company directors decide their remuneration strategy. So Let’s explore the best options step by step, considering the updated thresholds and rates.

The key changes effective from April 2025 are the reduction in the secondary threshold from £9100 to £5000. The increase in the Employers allowance from £5000 to £10500 and the employers NI contributions will increase from 13.8% to 15%.

These changes mean company directors must carefully balance salary and dividends in the next tax year to optimise tax efficiency.

 

When deciding on a remuneration strategy there are two considerations to make:

1.      Associated Companies: if you own or control multiple companies, the lower level corporation tax threshold of £50,000 will be split among the associated companies.

If you have three associated companies, each company gets a £16,667 threshold. Profits up to this amount are taxed at 19%, profits above this threshold are taxed at 25% with marginal relief.

2.      Eligibility for Employers Allowance: if you are the Director and only employee, your company does not qualify for the employers allowance. What do I mean by this is that if you pay yourself a salary above £5,000 your company will pay 15% employers NI contributions.

Watch this video for step by step worked examples to help you better understand what this all means.



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