Written by: Alice Richardson

Changes to NI and Director Only Payroll In 2025

From April 2025, the employer National Insurance Contributions (NIC) threshold will decrease from £9,100 to £5,000, while the NIC rate will rise from 13.8% to 15%.

For sole directors, this change raises questions about the most tax-efficient salary to take. Below are three possible options:

Option A: £5,000 Annual Salary

✅ Aligns with the NIC threshold, meaning no employer NIC is due.
 ❌ Does not reach the threshold to qualify for the state pension.

Option B: £6,500 Annual Salary

✅ Qualifies the director for state pension benefits.

✅ Incur only minimal employer NIC (£225 annually).

❌ Does not maximise corporation tax savings.

Option C: £12,570 Annual Salary

✅ Qualifies for the state pension and fully utilises the personal allowance.

✅ Employer NIC of ~£1,100, but this is offset by corporation tax savings.

✅ Ideal for most sole directors aiming for tax efficiency.

For companies with multiple directors, if salaries exceed the £5,000 secondary threshold, they can claim the £10,500 Employment Allowance (2025/26). This makes a £12,570 salary per director highly tax-efficient.

Managing payroll changes effectively is crucial for business owners. Our Accounting Tools and Bookkeeping solutions can help streamline salary calculations, while our Business Advisory services provide expert guidance on tax-efficient strategies. Stay compliant with HMRC by leveraging our HMRC Correspondence and Protection support and ensure accurate Management Accounts and Year End Accounts. We also assist with Tax Returns, VAT Returns, and Digital Accounting to keep your business finances optimized.

To ensure you maximise tax efficiency, consult a local professional accountant like SW&P Accountancy to tailor payroll decisions to your business needs.