Optimising Your Director’s Salary for 2025/26
As a director of a UK construction company, structuring your salary tax-efficiently can save thousands in tax. Changes in the 2025/26 tax year including adjustments to National Insurance Contributions (NICs) and the Employment Allowance will likely affect your take-home pay. Here’s what you need to know.
Key Changes from April 2025
• Employer’s National Insurance Contribution (NIC) is Increasing from 13.8% to 15%.
• The Lower Secondary Threshold is dropping from £9,100 to £5,000. This means the threshold for when employers NIC is required to pay is starting £4,100 earlier than last year.
• Employment Allowance has Increased which covers the Employment National Insurance, from £5,000 to £10,500 for eligible businesses.
Recommended Salary Strategies
We will run through the different options available to Directors for the 2025/26 tax year
Option 1: £12,570 per Year (£1,047.50 per Month) – Most Tax-Efficient
✅ Fully uses the tax-free Personal Allowance, meaning no Income Tax on your PAYE salary.
✅ Maintains State Pension eligibility.
✅ Reduces Corporation Tax as a deductible expense.
❌ Triggers Employer’s NIC (~£1,135.50 annually), but this may be offset if eligible for Employment Allowance.
Best for: Directors with employees who can claim Employment Allowance to reduce NIC costs.
Option 2: £6,500 per Year (£541.66 per Month) – Low-Tax Alternative
✅ Keeps State Pension eligibility.
✅ Minimises NIC liabilities.
❌ Doesn’t fully use the Personal Allowance, missing tax savings.
❌ Still incurs a small Employer’s NIC charge (~£225 per year).
Best for: Sole directors without employees who want to minimise NIC costs.
What Strategy Is Best If You’re a Sole Director?
Even without Employment Allowance, a £12,570 salary is usually the best option. The Corporation Tax savings and full use of the Personal Allowance typically outweigh the Employer’s NIC cost.
Balancing Salary and Dividends
Once your salary is set, dividends can be a tax-efficient way to increase income:
• No NICs on dividends.
• First £500 is tax-free.
• Up to £50,270 in total income is taxed at just 8.75%.
Final Thoughts
For most directors, a £12,570 salary remains the most tax-efficient choice. It allows you to:
✔ Fully use your tax-free allowance.
✔ Reduce Corporation Tax.
✔ Stay eligible for state benefits.
Considerations - If you are eligible for R&D, a higher salary would increase your R&D claim as Directors' dividends are not classed as eligible expenditure.
Still need help? Our Business Development Team can review your position and advise on what is the best set up for your business.
This isn’t just about salary optimisation.
It’s about building a business that provides the most value and that is what we set out to achieve for our clients.
Book a free consultation here to learn more.
Frequently asked questions
FAQ 1: What are the main tax changes I need to be aware of for my director's salary in 2025/26?
Answer: The key changes from April 2025 include an increase in the Employer's National Insurance Contribution (NIC) from 13.8% to 15% and a decrease in the Lower Secondary Threshold for Employer's NIC from £9,100 to £5,000. However, the Employment Allowance for eligible businesses is also increasing from £5,000 to £10,500.
FAQ 2: What is generally considered the most tax-efficient salary for a director in 2025/26?
Answer: For most directors, a salary of £12,570 per year (£1,047.50 per month) is often the most tax-efficient. This fully utilizes your tax-free Personal Allowance, avoids Income Tax on your PAYE salary, and maintains State Pension eligibility. While it triggers Employer's NIC, this cost may be offset by the Employment Allowance if your business is eligible.
FAQ 3: What if I am the sole director of my construction company and don't have other employees?
Answer: Even as a sole director without employees to claim the Employment Allowance against, a salary of £12,570 is usually still the best option. The Corporation Tax savings your company will make as a result of deducting the salary as an expense, combined with you fully using your Personal Allowance, typically outweigh the cost of the Employer's NIC.
FAQ 4: Besides salary, what other tax-efficient ways can I draw income from my construction company?
Answer: Once your salary is set, dividends can be a tax-efficient way to draw additional income. There are no National Insurance Contributions on dividends, the first £500 of dividend income is tax-free, and dividend income up to £50,270 in total income is taxed at a rate of just 8.75%.
FAQ 5: The blog mentions R&D. How could that affect my salary strategy?
Answer: If your construction company is eligible for Research and Development (R&D) tax credits, drawing a higher salary could potentially increase the amount of your R&D claim. This is a more complex area, and it's recommended to seek specific advice from a tax professional to understand how your R&D eligibility might influence the optimal salary strategy for your business.
This article has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the provided content.
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Written by the team at:
Saint Accountants
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