The answer (as is most often the case) is . . . .  it depends!

There are significant changes coming in from 6 April 2025 with regards class 1 national insurance, mainly that:-

• The class 1 secondary threshold (point at which employers pay NIC) is reducing from £9,100 to £5,000
• The rate of class 1 secondary NIC is increasing from 13.8% to 15%
• The employment allowance is increasing from £5,000 to £10,500 (for eligible employers)

As a result of these changes many businesses are likely going to be faced with much higher employment costs, which will need to be factored in to cash flows.

As a director of a company, you may be wondering what is the optimum level of salary to take as a result of these changes?

We have crunched the numbers and generally speaking it is still more tax efficient overall to continue to take a salary of £12,570 despite incurring additional NIC costs. The is due to the potential corporation tax saving being between 19% and 26.5% whereas the additional NIC cost is at 15%.

For example:-

In 2024/25, assuming no further employment allowance available and deciding to pay a salary of £12,570 rather than £9,100 with dividends up to the basic rate band:-

• The class 1 secondary (employer) NIC cost will be £479
• There will be additional CT relief of £750 (at 19%) available
• Resulting in an overall saving £271

In 2025/26, paying a £12,570 salary rather than £5,000 with dividends up to the basic rate band:-

• The class 1 secondary (employer) NIC cost will be £1,135
• There will be additional CT relief of £1,654 (at 19%)
• Resulting in an overall saving £519

Please note the savings can be as high as £920 in 2024/25 and £2,006 in 2025/26 per director, if there is available employment allowance and if the effective rate of corporation tax is 26.5%.

The only real downside to this is that the class 1 NIC payment will be payable during the tax year, whereas the corporation tax relief will not be received for several months, creating a cash flow disadvantage. You should therefore anticipate an NIC bill to pay towards the end of the tax year, however overall you should be better off.

When considering the optimum level of salary as a director, it is however important to consider a number of factors, including:-

• The availability of the employment allowance
• Other sources of income (including benefits in kind)
• Whether the company is making profits and can therefore benefit from the corporation tax savings
• Your state pension forecast – do you already have sufficient qualifying years? Even if you do it may still be better
• Overall remuneration planning

It is important to remember that each case can be unique and so if you are unsure then please feel free to speak to a member of our tax team as we would be happy to discuss this with you.