How to Pay Yourself from a Ltd Company UK | BEST Directors Salary 2025/2026 (Dividends vs Salary) скачать в хорошем качестве

How to Pay Yourself from a Ltd Company UK | BEST Directors Salary 2025/2026 (Dividends vs Salary)

How to pay yourself the MOST TAX-EFFICIENT SALARY as a DIRECTOR of a Limited company in 2025/2026. This is the exact DIRECTOR'S SALARY that I will be paying myself this year, and the figures have been APPROVED BY AN ACCOUNTANT! PLEASE NOTE: I am not an accountant, and this is not financial advice. However, I have been a business owner for 17 years and always verify my recommendations with my accountant. With this in mind, I believe the best way to pay yourself from a Ltd company in 2025/26 is if you are a sole director of a Ltd company without any special individual circumstances. In the Autumn Budget 2024, the chancellor announced some MAJOR National Insurance hikes that will hit businesses hard in the 2025/2026 tax year that starts in April. For the average sole director Ltd company, secondary class National Insurance changes will increase the employer's National Insurance burden by over £650! Despite this increase, I still recommend paying a basic salary up to the personal allowance threshold, as 15% National Insurance is still cheaper than paying 19% Corporation Tax, which is what would be required to use dividends instead. Above the personal threshold, it makes sense to switch to dividends, as that is when Income Tax and Employee's National Insurance would kick in. It is usually cheaper to pay Corporation Tax and then Dividend Tax vs. paying Income Tax, Employee's NI, and Employer's NI. Income Tax, Corporation Tax, and Dividend Tax thresholds remain unchanged this year as the government attempts to increase its tax intake via fiscal drag policies. Dividends vs Salary in 2025/2026 A basic salary topped off with dividends is often the most tax-efficient way to pay yourself from a Ltd business. The basic salary takes full advantage of the tax-free personal allowance, and dividends have a lower tax rate than a typical Income Tax and National Insurance setup. This may not be the case for everyone. In some circumstances, a full PAYE salary may be more tax-efficient. Please discuss your situation with an accountant so they can confirm what the best director's salary would be for your Ltd business this year. Income Tax Rates and Thresholds for 2025/2026: • Personal allowance = £12,570 (0%) • Basic rate = £12,571 to £50,270 (20%) • Higher rate = £50,271 to £125,140 (40%) • Additional rate = £125,140+ (45%) Note: For every £2 you earn over £100,000 you lose £1 of personal allowance. Dividend Tax Rates and Thresholds for 2025/2026: • Basic rate = £13,071 to £50,270 (8.75%) • Higher rate = £50,271 to £125,140 (33.75%) • Additional rate = £125,140+ (39.35%) Dividends Explained • Dividends are payable to shareholders from current year profits or retained profits from previous years • Dividends can be paid monthly, quarterly, or annually (interim dividends) or after the annual accounts (final dividends) • Dividend tax is paid via self-assessment • The tax-free dividend allowance for 2025/2026 is £500 National Insurance Rates and Thresholds for 2025/2026: • Lower Earnings Limit (Pension Threshold) - £6,500 per year • Primary Threshold (Employees) - £12,570 per year to align with personal allowance • Employees Rate: 8% up to £50,270 and 2% over £50,270 • Secondary Threshold (Employers) - £5,000 per year • Employers NI = 15% above the secondary threshold (no reduction above £50,270) • Combined Employees + Employers NI = 23% (We want to avoid this!) Corporation tax rates and thresholds for 2025/2026: • Less than £50,000 (Small Profits Rate) = 19% • £50,001 to £250,000 = Marginal Relief • £250,000+ = 25% Most Tax Efficient Director’s Salary 2025/2026: • Recommended Salary: £1,047.50 Per Month / £12,570 Per Year (Above this use dividends to avoid double NI & income tax) • Uses full personal allowance (no income tax due) • Above the LEL NI threshold to qualify for state pension & below Primary NI threshold (no employees NI due) • Above Secondary NI threshold so employers NI becomes due from £5,000 to £12,570 (£7570 at 15% = £1135.50) • (Last year £9,100 to £12,570 (£3470 at 13.8% = £478, this is an increase of £657.50 in 2025/26!) • But it’s still more tax efficient than paying a lower salary (15% NI vs 19% Corporation Tax) • NI is an allowable expense deductible from corporation tax at a minimum of 19%: £1,135.50 at 19% = £215.75 corporation tax saving • NI payments will need to be made to the HMRC monthly/quarterly • Employment Allowance increased to £10,500 - available to Ltd companies with employees (inc. husband & wife directors) earning above the NI Secondary Threshold, this offsets employers NI. How do you pay yourself as a director of a Ltd business in 2025/2026? Let us know what director's salary you will be using in the comments below!