The new tax year has now begun and the question arises on how much to pay a company director in wages during the 2025/26 tax year. As a result of the changes made to National Insurance the question is a little more complex this year to answer compared to previous years and there is more than one option, as outlined below. The strategy of paying a low director salary and then dividends on top of this still remains the most tax efficient option for the 2025/26 tax year.

Pay yourself a director wage of £5,000 a year or £416.67 a month. At this level of salary no income tax will be due and no employer and employee NI charges will be due.

This is the most straight forward solution for a company director and does not require any PAYE charges to be paid throughout the tax year.

You would then pay dividends on top of this wage to supplement the low salary value.

This is the typical option that has been adopted and recommend during prior years. The only difference being that the NI changes introduced for the 2025/26 tax year means that National Insurance kicks in at £5,000 which is a lot lower than the £9,096 threshold for last year.

State Pension Entitlement

An NI qualifying year towards your state pension will not be accrued at this level of salary if you chose option 1.

You could say that this is the end of the free state pension qualifying year and we’re confident that this was part of the plans when the National Insurances changes were formulated by the Government.

Pay yourself a director wage of £12,570 a year or £1,047.50 a month. At this level of salary employer NI charges will be due to be paid but these are a tax deductible expense for the company and actually reduce the corporation tax on your company profit for the year.

This is slightly more complex than option 1 as PAYE charges, more specifically the employer NI charge, will be incurred and will need to be paid to HMRC throughout the year.

Dividends would also be paid on top of this wage as normal and according to the strategy that we are all used to and have applied for many years now.

Corporation Tax Saving

Paying a director wage of £12,570 actually saves more in corporation tax when compared to a salary of £5,000; even though NI charges need to be paid. The saving is small but still worthwhile.

For most people the employer NI charge will be £1,136 but the corporation tax saving will be £1,654 (at 19% corporation tax) resulting a net reduction in tax of £518 per annum.

State Pension Entitlement

An NI qualifying year towards your state pension will be accrued at this level of salary if you chose option 2.

Paying a director wage of £12,570 actually saves more in corporation tax when compared to a salary of £5,000; even though NI charges need to be paid. The saving is small but still worthwhile.

For most people the employer NI charge will be £1,136 but the corporation tax saving will be £1,654 (at 19% corporation tax) resulting a net reduction in tax of £518 per annum.

State Pension Entitlement

There are more benefits in paying yourself a director wage of £12,570 a year (when compared to £5,000 a year) for the 2025/26 tax year.

The benefits are as follows:

1. Tax saving of £518 a year for a company paying corporation tax at 19%.
2. The accrual of a Qualifying NI Year towards your state pension.

The solution is a little more complex this financial year due to the changes in the NI rates that have been introduced and we have kept this guide as simple as possible to cover the two most straight forward options that will apply to the vast majority of clients.