The optimum director’s salary 2025/26 is £12,570 per annum. The reason for this is all down to the National Insurance (NI) rates.
The lower earnings limit for NI in 2025/26 is £6,500 per annum. If you earn over this amount it will count as a qualifying year for your future state pension.
The primary earnings limit for NI in 2025/26 is £12,570 per annum. If your annual salary exceeds this amount, then you the employee will need to pay NI contributions.
The secondary earnings limit for NI in 2025/26 is £5,000 per annum. If your annual salary exceeds this amount the employer (your business) will need to pay NI contributions.
The optimum in 2025/26 is to pay £12,570. This ensures the taxpayer qualifies for the state pension but does not need to pay any employee contributions. (employers NI contributions are £1,136).
Why not pay a director’s salary of £5,000?
In previous years it has been recommended to pay optimum salaries up to the secondary threshold. In 2025/26 this threshold is only £5,000 (It was £9,100 in tax year 2024/25).
Paying up to the secondary rate avoids PAYE, employees NI and employers NI.
The £5,000 salary, does not, however, act a qualifying year for state pension purposes.
Our recommended optimum salary of £12,570 will be liable to employers NI but it saves more in corporation tax.
Can I claim the employment allowance?
The employment allowance allows a company to reduce their employers NI liability by up to £10,500 per annum. This is a significant increase from the 2024/25 tax year which was only a £5,000 reduction.
Unfortunately, the employment allowance is not available to all businesses. A company must have multiple directors or employees to be able to make the claim. See who can claim the employment allowance.
Should an employment allowance claim be available, then the employers NI of £1,136 would reduce down to £nil.
What is the optimum director’s salary for a sole director in 2025/26?
Sole directors without any other employees don’t benefit from the employment allowance. This results in employers NI of £1,136 being payable.
The logical answer would therefore be to pay the lower salary of £5,000. This is below the secondary threshold, so no employers NI is payable. The £5,000 salary, does not, however, act a qualifying year for state pension purposes.
We don’t recommend this. The higher optimum director’s salary of £12,570 saves corporation tax of at least £1,654, which increases to £2,307. (Depending on the corporation tax rate applied).
Sole directors should still pay themselves £1,047.50 per month.
This not only saves more in corporation tax but also ensures another qualifying year for state pension purposes is achieved.
Please contact Mike Young on 01626 208802 or at michaely@peplows.co.uk if you wish to discuss any of the above.