If you have a contract of employment with your company (however unlikely this may be), you must pay yourself the National Minimum Wage, £12.21 per hour for adults aged 21 or over.
Pension contributions
You should also check with your accountant if a minimum salary is required if you contribute to a personal or executive pension scheme.
Are you caught by IR35?
This article assumes that your contract work is not caught by IR35.
Any income caught by IR35 is taxed as a deemed salary, subject to employment taxes.
What is a tax-efficient director’s salary in 2025/26?
Your optimum salary for the year is determined by the current tax rates and bands and whether your company can claim the Employment Allowance (EA).
This incentive cancels out the employers’ NIC liability of eligible businesses to encourage them to take on staff.
The rules changed in April 2016, so you cannot claim it if you are the sole director of a company (with no other employees).
Corporation Tax also increased from April 2023:
The first £50,000 of profits are still taxed at 19%.
Profits between £50,000 and £250,000 are taxed at 26.5%.
Profits over £250,000 are taxed at 25%.
As a result, any Corporation Tax savings mentioned below will be higher if your profits are above £50,000 for the tax year. In these examples, we assume your company pays CT at 19%.
a) £6,500 (tax efficient, limited paperwork)
For the 2025/6 tax year, if you pay a £6,500 director’s salary, you pay no income tax or Employees’ National Insurance.
Your company pays £225 in Employers’ NICs on wages above the £5,000 Secondary Threshold.
£6,500 is a tax-efficient salary if your company cannot claim the EA. No employees’ NIC or Income Tax is payable.
To qualify for the state pension, you must pay employees a minimum of £6,500 for the year (see above).
This is a hassle-free and tax-efficient salary for single-director companies. However, £12,570 is slightly more tax-efficient but involves more administration (see below).
b) £12,570 (optimum for single-director companies)
If you pay a director’s salary of £12,570, there is no income tax or Employees’ NI liability.
However, the company pays £1,135.50 Employers’ NI on a salary above the £6,500 Secondary Threshold.
As salaries and employers’ NI are both tax deductible, the company saves an extra £1,277.75 in Corporation Tax compared to the £6,500 salary level.
This means that the company is £190.75 better off.
This is the most tax-efficient salary for single-director companies. However, you may prefer the simplicity of the lower £6,500 salary.
c) £12,570 (if the company can claim the Employment Allowance)
If your company can claim the EA and pay each director/employee a salary of £12,570, there is no income tax to pay (as this is the same amount as the personal allowance).
Ordinarily, the company would have to pay Employers’ NICs of £1135.50.
However, the Employers’ NIC element is cancelled out by the Employment Allowance.
Also, by taking a £12,570 salary, the company saves a minimum of £1,110.55 in additional Corporation Tax compared to the £6,500 salary level (per employee).
So, £12,570 is the most tax-efficient director’s salary for the 2025/26 tax year if you can claim the EA.
The company is better off by £1,110.55 per employee.
What was the most tax-efficient director’s salary in 2024/5?
The optimum salary for 2023/4 was also £12,570.
What was the most tax-efficient director’s salary in 2023/4?
The optimum salary for 2023/4 was also £12,570.
Further Considerations
It is best to work out your overall projected income for the tax year in terms of salary and dividends.
Before you distribute dividends, your company must have sufficient retained profits. Otherwise, your dividend declaration could be illegal.
You should discuss your overall remuneration strategy with your accountant before relying on the information in this article.
