From 6 April 2025, changes to National Insurance contributions (NICs) are coming, and they could impact how you pay yourself as a company director and shareholder. If you usually extract profits through a mix of salary and dividends, it’s important to understand these updates — and how to make them work in your favour.
Our friendly and down-to-earth team have helped hundreds of business owners stay ahead of tax changes, and we’re ready to guide you through this one too. Let’s break it down…
What’s Changing with National Insurance for Directors?
- From April, the point at which employers pay NICs will decrease to £5,000 (from £9,096) and the rate of NICs will increase to 15% (from 13.8%).
- If you currently take a low salary and top up your income with dividends (a common approach for directors), this change may shift the most tax-efficient balance between salary and dividends.
- One piece of good news is that from April, the Employment Allowance increases to £10,500 from £5,000, if you meet the qualifying criteria.
Harland’s Recommendations for Directors
Paying yourself tax-efficiently will still involve a combination of salary and dividends, but the best balance may change with the lower NIC rate. It’s not just NICs to consider — updates to the lower earning limit (LEL), corporation tax tiers, and dividend tax rates will all affect how much you can take home. And since dividends can only be taken from profits, squeezing profit margins could limit what’s available to extract.
The best approach will depend on your individual circumstances, however the points to consider include:
- Taking a salary up to the employers secondary threshold (£5,000) – to avoid NICs but you will not qualify for state benefits.
- Taking a salary up to the employees lower earning limit threshold (£6,500) – you might pay a small amount of NICs but will qualify for state benefits.
- Taking a salary up to the primary threshold (£12,570) — you might pay £1,136 NICs but you will maximise your personal allowance and receive corporation tax relief.
- Using dividends for the rest of your income — they’re taxed at lower rates and don’t attract NICs but company’s do not receive corporation tax relief on dividends.
- Considering pension contributions — if you are fortunate enough not to require a partial or full salary consider additional pension contributions which can reduce corporation tax and boost your retirement savings.
We can run the numbers and help you decide the best way forward.
Your Next Steps — How Harland Can Help
Tax planning isn’t a one-size-fits-all solution, especially for directors juggling multiple income streams. The upcoming NIC changes add complexity, but with careful planning, you can still structure your pay to be as tax-efficient as possible. We offer personalised director remuneration reviews to help you make informed decisions. We’ll walk you through the options, calculate the impact, and create a strategy tailored to your situation — so you can step into the new tax year with confidence.
If you’d like to review your pay structure or need advice on how the changes will affect you, we’re here to help. Get in touch and let’s make sure your profit extraction plan works for you in 2025 and beyond.
