Running a limited company gives you choices about how – and when – you pay yourself. Those choices matter more than ever. With the dividend allowance now just £500 and National Insurance thresholds shifting, every pound you withdraw influences both your personal take‑home pay and your company’s cashflow. That is why tax‑efficient remuneration is not a buzz‑phrase but a working discipline for owner‑managers in sectors as varied as construction sites, factory floors, commercial kitchens and digital start‑ups.
Add to that the abolition of the lifetime allowance, a growing list of green incentives and the government’s drive to widen the tax net, and the margin for simple mistakes narrows fast. According to the Office for National Statistics, there were 2.72 million VAT‑registered businesses in March 2024, with companies making up 75.6% of the total (ONS, 2024). Most of those companies are run by people like you – directors who straddle personal and corporate tax rules daily. Getting remuneration right means keeping money in your pocket, demonstrating prudent stewardship to stakeholders and freeing working capital for growth. In this guide, we set out the core 2025/26 rules, the practical pros and cons of each option and a framework you can adapt in real time.
Structuring tax‑efficient remuneration: Salary vs dividends
- Salary basics: Paying a salary up to the primary National Insurance threshold (£12,570) keeps you within your personal allowance and secures state pension credits without employee NICs. Employer NICs now start at £5,000 (secondary threshold) and the rate has risen to 15%.
- Dividends in brief: Dividends attract no NICs and, after using your personal allowance, enjoy the £500 dividend allowance followed by rates of 8.75%, 33.75% and 39.35% depending on your band.
- Blended approach: A common 2025/26 template is a salary equal to the NIC primary threshold, topped up with dividends to the basic‑rate ceiling. Beyond that, weigh the 33.75% dividend rate against corporation tax deductible pension contributions or reinvestment.
Practical checkpoints
- Pension auto‑enrolment trigger: Salary above £6,500 obliges you to operate auto‑enrolment even if you opt out later.
- Employment allowance: The allowance is now £10,500 a year. Because employer NIC starts at just £5,000 of pay, many smaller companies will see their entire Class 1 bill covered – but always confirm you qualify before counting on the saving.
- Cashflow timing: Dividends are payable only from distributable reserves. Plan quarterly reviews: dividend paperwork: should always precede transfers.
Boosting your pension – the overlooked remuneration tool
- Annual allowance: Most directors can contribute up to £60,000 gross a year, subject to tapering once adjusted income exceeds £260,000.
- No lifetime allowance: From April 2024 the lifetime allowance charge is gone, but the tax‑free lump‑sum cap (£268,275) remains.
- Corporation tax relief: Employer contributions are deductible when “wholly and exclusively” incurred for the trade – usually when aligned to a written remuneration policy.
Key takeaway: A pension contribution can be more tax‑efficient than a higher‑rate dividend because it escapes NICs and corporation tax (currently 25% for profits above £250k). It also compounds outside the business, reducing balance‑sheet exposure.
Using allowances to lower the effective rate
- Personal allowance: Still frozen at £12,570 until at least 2027/28 and clawed back once income exceeds £100,000.
- Dividend allowance: Now £500, worth £43.75 in tax at basic rate – small but still free money.
- Savings allowance: If you leave some remuneration in directors’ loan accounts, consider the £1,000 (basic rate) or £500 (higher rate) personal savings allowance for interest receipts.
Tip: Where family members legitimately own shares, gift a portion to a spouse in a lower tax band to multiply the dividend and personal allowance effect, subject to settlements rules.
Smart company benefits for 2025/26
Electric cars – the flagship benefit
Choose a pure electric company car and the benefit‑in‑kind (BIK) rate is 3% of list price in 2025/26, rising by 1% a year to a still‑modest 5% in 2027/28 (HMRC, 2025). The company claims first‑year capital allowances, while you enjoy an ultra‑low tax charge. Salary‑sacrifice schemes aligned to this BIK can be cheaper than private leasing.
Mobile phones and home office kit
Provide one mobile phone per director on a company contract: no taxable benefit, full corporation tax relief. For home working, the trivial‑benefit rules (£50 per item, annual cap £300 for directors) can cover small peripherals, but take care not to fragment what should be a single expense.
Professional subscriptions and training
Relevant professional fees, industry body memberships and genuinely work‑related CPD are deductible with no personal tax charge. Group claims can also foster staff retention in growing teams.
Five‑step action plan for owner‑managers
- Run the numbers quarterly: Cashflow forecast: salary, employer NICs, corporation tax and pension contributions side by side.
- Document board minutes: Dividends: date‑stamped vouchers and meeting notes guard against HMRC scrutiny.
- Align pension funding: Slot payments before corporation‑tax year‑end to lock in relief.
- Review BIK fleet: Electric vehicles: check list prices before the 31 March cut‑off for mid‑year updates.
- Use professional support: Our tax planning service offers scenario modelling tailored to your sector.
According to the Office for Budget Responsibility, income tax alone will raise £330.7 billion in 2025/26 – 26.9% of all receipts (OBR, 2025). Even marginal gains in remuneration planning translate into significant savings over a director’s working life.
Ready to optimise?
We specialise in tax‑efficient remuneration strategies for owner‑managed businesses across construction, manufacturing, hospitality, ecommerce and tech start‑ups.
If you would like a personalised illustration or a second opinion on your current approach, get in touch today and let us help you with tax-efficient remuneration so you keep more of what you earn.