In this article, we break down the most tax-efficient way to pay yourself as a director in 2025/2026. Since situations and objectives differ, we've compiled the 3 most tax efficient ways to pay yourself from a limited company this year so you can choose the best fit.

In last year’s Most Tax Efficient Directors Salary 2024/25 post, we explained that the most tax efficient salary UK directors could pay themselves was through a tailored mix of 2 components, salary and dividend payments. This principle remains true for 2025/26 with some adjustments.
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We recommend including a basic salary because this component:

• May allow you to achieve a qualifying year for state pension purposes.
• Will utilise your Personal Tax-Free Allowance.
• Is seen as an allowable business expense, which could reduce your corporation tax. 
• Will face little to no National Insurance contributions.

We recommend that the remainder of your income be earned through dividend payments, because this component:

• Will be subject to dividend tax rates which are generally lower than personal income tax rates

The primary difference between the 3 options we will cover is the level of salary, so we will hone in on this component below, but feel free to learn more about dividends here. If you’d like our help optimising your mix, get in touch with us today.
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What this strategy assumes

In order to find the most tax efficient salary structure we need to make a few assumptions. This article assumes that your sole earnings are from your company and you don’t have any other income (other employment, property, investments etc.). If you do have other income then adjustments may be needed to find the best way to pay yourself as a director this year.
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The most tax efficient directors salary 2025/26

The best way to pay yourself from a limited company depends on how many staff you currently employ. This results in 2 groups of directors, namely:

• Sole directors with no other employees on payroll, and
• 2+ directors on payroll or an additional 1+ employee/s on payroll

Based on the group you fall into, let's look at your options in more detail.
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Sole directors with no other employees on payroll

In this case, you have 3 options. Either pay yourself a salary component of:

1. £5,000 per annum, the Class 1 National Insurance Secondary Threshold (Mix 1), or
2. £6,500 per annum, the Lower Earnings Limit (Mix 2), or
3. £12,570 per annum, the Personal Tax Allowance (Mix 3)

Note, all allowances and thresholds are explained in the FAQ section below. Let's look at each of these 3 more closely.
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Pay yourself a salary of £5,000 per annum (Mix 1)

This is Mix 1 on the graph. Paying yourself a salary of £416.66 per month amounts to £5,000 annually, which matches the Secondary Threshold (£5,000). This means that:

• You will not have any personal tax obligations
• You will not have any Employee or Employer National Insurance (NI) obligations
• Your salary is below the Lower Earnings Limit of £6,500 so you will not achieve a qualifying year in terms of state pension etc.

You’d earn the remainder of your income through dividend payments. This is likely the most tax efficient way of paying yourself if your main goal is to avoid NI obligations.
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Pay yourself £6,500 per annum (Mix 2)

This is Mix 2 on the graph. Paying yourself a salary of £541.66 per month amounts to £6,500 annually. This matches the Lower Earnings Limit which means that:

• You will not have any personal tax obligations
• You will have a small Employer NI obligation of £225
• Your salary is above the Lower Earnings Limit so you will achieve a qualifying year in terms of state pension etc.

You’d earn the remainder of your income through dividend payments. This may be the most tax efficient directors salary for 2025/26 if you wish to achieve a qualifying year at the lowest tax/NI cost.
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Pay yourself £12,570 per annum (Mix 3)

This is Mix 3 on the graph. Paying yourself a salary of £1,047.50 per month amounts to £12,570 annually. This matches the Personal Tax Allowance which means that:

• You will not have any personal tax obligations
• You will have an Employer NI obligation of £1,135.50
• Your salary is above the Lower Earnings Limit so you will achieve a qualifying year in terms of state pension etc.

You’d earn the remainder of your income through dividend payments. This may prove the most tax efficient salary for directors seeking to leverage their full personal allowance.
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With Mix 3, you have increased your salary to £12,570 which is £7,570 above the £5,000 Class 1 National Insurance Secondary Threshold. Although this additional £7,570 results in an Employer NI obligation of £1,135.50, this additional burden would be offset by corporation tax savings.

This is because, as opposed to Mix 1 (£5,000), your salary expense is increased by £7,570 + £1,135.50 = £8,705.50. This allowable expense of £8,705.50 will reduce your corporation tax by £8,705.50 X 19% = £1,654.05 assuming that your annual company profits are £50,000 or less. If your profits are higher, then your corporate tax savings will also increase.
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Which Mix is Best?

For sole directors with no other employees, here is who each mix is best for:

Mix 1 - With a £5,000 annual salary, this mix is best if you wish to leverage part of your tax-free personal allowance while avoiding payroll liabilities altogether. The downside is you lose out on a qualifying year in terms of state pension.

Mix 2 - With a £6,500 annual salary, this mix is ideal if you wish to gain a qualifying year at the lowest possible cost while using more of your personal allowance but with the additional Employer NI obligation of £225.

Mix 3 - With a £12,570 annual salary, this mix may prove the most tax efficient way to pay yourself if you’re looking to leverage your personal allowance in full and gain a qualifying year. While this carries an Employer NI obligation of £1,135.50, this will suit those looking to use such an expense to reduce their corporation tax bills.
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If you’re one of our payroll clients, we’d recommend Mix 3 because we’ll stay on top of any obligations for you. If you’d like our help with this, please get in touch with us today.

2+ directors on payroll or an additional 1+ employee/s on payroll

On the other hand, if you have 2 or more directors on payroll, or 1 or more additional employees, then you will be eligible for Employment Allowance. See more on eligibility in the FAQ section below. The allowance can be applied to Employer National Insurance contributions up to £10,500 in 2025/26 (per company, not per employee).

Pay yourself £12,570 per annum (Mix 3)

In these cases, we would usually recommend Mix 3 because this will leverage the Employment Allowance and your Personal Allowance. For example, if your company has 2 directors, you would pay yourself (and the second director) a salary of £1,047.50 per month. This amounts to £12,570 annually which matches the Personal Tax Allowance. For both directors, this means:

• You won’t have any personal tax obligations
• You won’t have any Employee NI obligations
• You won't have any Employer NI obligations
• Your salary is above the Lower Earnings Limit so you will achieve a qualifying year in terms of state pension etc.

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For clarity, in the case of 2 directors earning £12,570, this results in a combined (£7,570 x 2) £15,140 above the Class 1 NI Secondary Threshold (£5,000 each). This means that the £15,140 will be subject to 15% Employer NI, totalling £2,271. As the first £10,500 of Employer NI is covered by Employment Allowance, there is no liability.

Frequently asked questions

What is the Personal Tax Allowance for 2025/26?

Earnings below this threshold won’t be subject to personal income tax. For England, Northern Ireland and Scotland, the personal tax allowance for 2025/26 is:

• £242 per week
• £1,048 per month
• £12,570 per year

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What is Employer National Insurance in 2025/26?

Employer National Insurance is another form of tax levied on earnings and this is paid by an employer. For 2025/2026, the rate is set at 15% of earnings that are above secondary threshold.

This is in contrast to 13.8% of earnings above the secondary threshold in 2024/25.
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What is the Class 1 National Insurance Secondary Threshold for 2025/26?

Earnings below this threshold won’t be subject to Employer National Insurance contributions. The Class 1 National Insurance Secondary Threshold for 2025/26 is:

• £96 per week
• £417 per month
• £5,000 per year

This has been reduced from £9,100 in 2024/25.
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What is the Employment Allowance for 2025/26?

Employment Allowance allows you, as an eligible employer, to reduce your annual National Insurance liability by up to the annual allowance. This figure is per company and not per employee. For the 2025/26 tax year the allowance is:

• £10,500

This has been increased from £5,000 available in 2024/25.

To qualify for the allowance this year (2025/2026), you need to:

• Be registered as an employer
• Be a business (or a charity) with documented employees
• Have 2+ directors who earn more than the secondary threshold for Class 1 National Insurance contributions (for Limited companies only employing directors).
• Your total Employer Class 1 National Insurance liability must have been less than £100,000 in the prior tax year (2024/2025).

Learn more on the government’s page where they break down employment allowance eligibility. If you want to freshen up on the basics of payroll and how it works, see our UK payroll explained post.
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What is the Lower Earnings Limit (LEL) for 2025/26?

Provided you earn a salary above the LEL, this counts as if you are making National Insurance contributions and you will receive the associated benefits. The LEL for 2024/25 is:

• £125 per week
• £542 per month
• £6,500 per year

This has increased from £6,396 per year in 2024/25.
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Will I still qualify for state pension and other benefits?

Even if you aren’t making National Insurance contributions, provided your salary is above the Lower Earnings Limit (LEL), which is £542 per month (£6,500 per annum), this will still count as if you are making contributions. This means you will still receive the benefits associated with making the contributions. Therefore, with:

Mix 1: No. The salary is below LEL so you don’t have a qualifying year

Mix 2: Yes. The salary is above the LEL, so you have a qualifying year

Mix 3: Yes. The salary is above the LEL, so you have a qualifying year
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Last word

In summary, the most tax-efficient way to pay yourself as a director in 2025/2026 is through a mix of salary and dividend payments. The most tax efficient salary uk directors can earn is either £5,000, £6.500 or £12,570 depending on the number of employees and your personal preference. The remainder of your payments will be in the form of dividends, benefiting from the lower dividend tax rates.

That concludes our post on the most tax efficient directors salary 2025/26. We hope this helps you identify the best way to pay yourself from a limited company this year. If you need more help or would like us to handle this for you, get in touch with us today.