Director Salary Models: Optimising Your Remuneration Strategy for 2025/26 (2)

As company directors approach the new financial year, determining the most tax-efficient salary structure becomes increasingly important. At MCC Partners, we understand that strategic remuneration planning is crucial for maximising take-home pay while remaining compliant with HMRC requirements.

Understanding Your Options

Directors typically have flexibility in how they extract value from their companies. The most common approaches include:

1. Salary-Only Model

Taking remuneration solely as a salary provides certainty but often isn't the most tax-efficient option. For 2025/26, directors should consider:

• Personal Allowance threshold of £12,570
• Primary and Secondary National Insurance thresholds
• The increased Employer's National Insurance rate (now at 15.8%)
• Income tax bands and rates

Key consideration: While salaries are fully deductible for Corporation Tax purposes, both employer and employee National Insurance contributions create additional costs.

2. Dividend-Heavy Model

Many directors opt for a small salary supplemented by dividends. The optimal basic salary typically aligns with:

• The NI Secondary Threshold (£9,100) to maintain state pension qualification while minimising NI contributions
• Or the Personal Allowance (£12,570) to maximise tax-free income

Dividends beyond this benefit from:

• The dividend allowance (reduced to £500 for 2025/26)
• Lower dividend tax rates compared to income tax rates

Key consideration: Remember that dividends can only be paid from available profits, and they aren't deductible for Corporation Tax purposes.

3. Balanced Approach

For 2025/26, a balanced strategy typically involves:

• Taking a salary up to the optimal threshold (either £9,100 or £12,570 depending on circumstances)
• Extracting additional funds as dividends up to the higher rate threshold
• Considering timing of dividend payments to maximise allowances across tax years

Calculating Your Optimal Structure

To illustrate, let's compare three common scenarios for a company with £80,000 of profit before director's remuneration:

Other Considerations for 2025/26

When planning your remuneration strategy, also consider:

• Pension contributions as an alternative to salary or dividends
• Impact on mortgage applications (lenders often prefer salary income)
• Future changes to tax legislation and thresholds
• Cash flow requirements of both the business and personal finances

Next Steps

The optimal remuneration strategy depends on your specific circumstances, including your company's profitability, your personal tax position, and long-term financial goals.

At MCC Partners, we specialise in helping directors navigate these complex decisions. Contact our team at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 01474 619 990 to arrange a consultation tailored to your situation.

Remember: Save Time, Save Tax, Keep it Simple.