If you’re a company director wondering how much to pay yourself in 2025/26, you’re not alone. With tax thresholds shifting and NI rules changing, getting this right could save you thousands. So here’s a clear, no-jargon guide on the most tax-efficient way to split your salary and dividends this year.

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Step 1: Start with the Right Salary

✅ Single-Director Companies (No Employment Allowance)

- Recommended Salary: £12,570/year (£1,047.50/month)

- Employer NI Due: Yes – 15% on amount above £5,000 = approx. £1,135 for the year

- Employee NI: None (threshold starts at £12,570)

- Why This Works: You still get full corporation tax relief, qualify for state pension, and it keeps things simple. Yes, you pay some employer NI, but it's outweighed by the tax savings.

✅ Multi-Director or Multi-Employee Companies (Eligible for Employment Allowance)

- Recommended Salary: £12,570/year

- Employer NI: Fully offset by the £10,500 Employment Allowance

- Why This Works: You get all the benefits of the higher salary without paying a penny in NI.

Step 2: Top Up with Dividends

Once you've set your salary, you can take the rest of your income through dividends. Here's how to structure it based on your personal goals:

1. Pay No Tax at All

- Salary: £12,570

- Tax-Free Dividend Allowance: £500

- Total Annual Income: £13,070

- Monthly Drawings: £1,089.17

- Tax to Save: £0

Perfect for low-income years or when you're testing a new venture.

2. Stay in the Basic Rate Tax Band

- Salary: £12,570

- Taxable Dividends: Up to £37,200 (after the £500 allowance)

- Dividend Tax: 8.75% = £3,255/year

- Total Annual Income: £50,270

- Monthly Drawings: £4,230

- Tax to Save: £271.25/month

This is the sweet spot for most business owners. Low tax. No higher rate headaches.

3. Maximise Income Up to £100,000

- Salary: £12,570

- Dividends: £87,430

- Dividend Tax:

- £37,200 @ 8.75% = £3,255

- £50,230 @ 33.75% = £16,961

- Total Tax: £20,216

- Total Income: £100,000

- Monthly Drawings: £8,333

- Tax to Save: £1,684/month

You’re into higher tax territory, but you keep your personal allowance, which you lose above £100k. Ideal if you want to draw more without falling off a tax cliff.

Final Thoughts

Whether you want to take home just enough to live tax-free, or you're pulling a six-figure income, the key is balancing your salary and dividends smartly. If you’re a single-director company, bite the bullet on the employer NI and pay the £12,570 salary anyway – it still works out better in most cases.

If you’ve got a spouse or another employee in the business, make sure you’re claiming the Employment Allowance – it's an easy win.

Need help structuring this properly for your business? That’s what we do. Drop us a message and we’ll walk you through it.