Why directors get paid a salary
A small director's salary:
- Builds qualifying years toward the State Pension
- Is corporation tax-deductible (saves 19–25%)
- Justifies trivial benefits, mileage, home-office costs
- Smooths cash flow versus pure-dividend strategies
The 2024/25 sweet spot
Most single-director companies pay a salary of £12,570 — the personal allowance:
- No income tax (within the personal allowance)
- No employee NIC (Primary Threshold is also £12,570)
- Employer NIC kicks in over £9,100 Secondary Threshold
- If you have other employees and qualify for the £5,000 Employment Allowance, employer NIC is wiped out
Sole-director companies — the EA trap
A company with only one director and no other employees cannot claim the Employment Allowance. In that case, paying £9,100 (the Secondary Threshold) avoids employer NIC entirely but loses ~£660 of tax-deductible salary versus the £12,570 strategy. Most accountants still prefer the £12,570 figure as the post-CT saving outweighs the NIC cost.
Director NIC: the annual basis
HMRC applies NIC thresholds cumulatively to directors. That means you can take an irregular payment without triggering NIC until the annual threshold is breached.
Common mistakes
- Paying yourself without registering for PAYE first
- Forgetting to run an FPS for £0 months (still required)
- Voting dividends without sufficient retained profits
- Mixing salary and dividends through a single bank transfer with no audit trail
We run director-only payroll from £10/month. Get started.