What Is the Most Tax-Efficient Salary a Director Can Pay Themselves After the Employer National Insurance Increases Introduced on 6 April 2025?
As of 6 April 2025, new changes to the UK’s Employer National Insurance (NI) rules have come into effect. These changes have significant implications for directors of limited companies who want to maximise their tax efficiency when drawing a salary from their business. In this post, we break down the key changes and answer the important question: What is now the most tax-efficient salary for a company director?
Key Employer NI Changes from 6 April 2025:
- Employer NI threshold reduced
Previously, employer NI only became payable once an employee earned over £9,100. This threshold has now dropped substantially to just £5,000.
- Employer NI rate increased
The rate has increased from 13.8% to 15%, raising the cost of employing staff — including directors — above the new threshold.
- Employment Allowance increased
The allowance has risen from £5,000 to £10,500, which is great news for most employers.
However, companies with only one director and no other employees typically do not qualify for this allowance.
What Does This Mean for Director Salaries?
Before April 2025, many directors paid themselves a salary of £9,096 to avoid both income tax and employer NI. But with the new threshold now at £5,000, that same salary now incurs employer NI of £614, which reduces the overall tax efficiency.
Let’s compare three different salary levels to see which one provides the best outcome after tax and NI:
Example 1: Salary of £5,000
- No employer or employee NI.
- No income tax.
- Straightforward to administer.
- Net amount available after tax: £39,166
A decent result with minimal admin. However, it may not qualify the director for full State Pension benefits.
Example 2: Salary of £6,500
- Just over the new threshold, so employer NI of £225 is due.
- No income tax.
- Qualifies for State Pension credits (important for long-term planning).
- Net amount after tax: £39,260
A slightly better result than the £5,000 salary, with added pension entitlement. Slightly more admin due to NI obligations.
Example 3: Salary of £12,570
- This is the personal allowance limit — the amount you can earn without paying income tax.
- Employer NI due: £1,136
- Employee NI and some income tax may apply.
- Net amount after tax: £39,639
The best overall outcome, despite the higher employer NI and admin required.
Conclusion: £12,570 Is Now the Most Tax-Efficient Salary
Despite the increased employer NI, paying yourself a salary of £12,570 delivers the highest net benefit after tax. While it does involve a bit more admin — such as payroll submissions and NI payments — the financial gain makes it worthwhile for most directors.
If you’re a director of a limited company, now is a good time to review your salary structure to ensure you’re operating as tax-efficiently as possible under the new rules.
Need Help Adjusting Your Director’s Salary?
At EOACC, we help directors of limited companies stay tax-efficient, compliant, and stress-free. If you’re unsure about how these changes affect your business, or if you’d like help updating your payroll strategy, get in touch — we’d be happy to assist. Contact our team today.
Watch Our Video Breakdown
Prefer to watch instead of read? In our YouTube video, we walk you through these examples with visuals and easy-to-follow explanations:
Watch the full video here
