Your Questions Answered by TaxAssist Accountants

How is National Insurance changing for directors?

I am a director and shareholder in my own company. Following the announcement of changes to National Insurance, what is the most tax-efficient method of profit extraction from my company?

Answer

Profit extraction from an owner-managed company can be complicated and it is always best to speak to your accountant who knows your financial situation and circumstances. Any other income you receive will affect the calculations, as will the financial performance of your company.

When it comes to looking at the tax-efficiency of directors' pay, many factors should be considered:

• dividend allowance
• employee class 1 National Insurance Contributions (NIC) rate
• employer class 1 National Insurance Contributions (NIC) rate
• corporation tax rate
• pension contributions
• state pension entitlement

It is important to take a detailed look, using numbers, to work out the most tax-efficient way of paying yourself. It is a balancing method, and the level of salary, bonus and/or dividend will need to be compared to determine the most tax advantageous payment.

It is important to bear in mind that the employment allowance cannot be claimed by companies where the director is the only employee paid above the secondary threshold and therefore the only person for whom employers’ NIC is payable.

Employer National Insurance changes from April 2025

A key change announced in the Autumn Budget was an increase in the rate of NIC paid by employers in respect of the wages they pay to their employees, including directors.

Currently, employers pay employer NIC at the rate of 13.8% on wages over £9,100. However, from April 2025, the rate employers must pay NIC will increase by 1.2% from 13.8% to 15%. In addition, the threshold where employer contributions become payable will fall from £9,100 to £5,000.

 By Catherine Heinen, FCCA

Information supplied by Cheryl Hopkins, Chartered Certified Accountant, TaxAssist Accountants. Advice shared in this article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayers’ circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take, action, as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.