Why Director's Salary Matters for Your CT600
Your director's salary is a deductible expense for corporation tax. The more salary you take, the lower your company's taxable profit — and the lower your CT600 tax bill.
But salary also triggers income tax and National Insurance. The sweet spot balances these competing effects.
The 2025-26 Thresholds
| Threshold | Amount | Significance |
|---|---|---|
| Personal Allowance | £12,570 | No income tax below this |
| NI Primary Threshold | £12,570 | Employee NI starts here |
| NI Secondary Threshold | £5,000 | Employer NI starts here |
| Employment Allowance | £10,500 | Offsets employer NI (if eligible) |
The Three Common Strategies
Strategy 1: £12,570 (Most Common)
Pay yourself £12,570 per year (£1,047.50/month).
Why this works:
- ✅ Uses your full Personal Allowance — £0 income tax
- ✅ Employee NI: £0 (salary equals the Primary Threshold)
- ✅ Employer NI: ~£1,136 (on £12,570 - £5,000 = £7,570 at 15%)
- ✅ Corporation tax deduction: £12,570 + £1,136 employer NI = £13,706 off your profits
- ✅ Qualifies for State Pension (above the Lower Earnings Limit of £6,500)
CT600 impact: Reduces your Box 155 trading profit by £13,706.
At 19% corporation tax, that saves: ~£2,604 in tax.
Strategy 2: £5,000 (Minimise All NI)
Pay yourself £5,000 per year (£416.67/month).
Why some directors prefer this:
- ✅ £0 income tax
- ✅ £0 employee NI
- ✅ £0 employer NI (below Secondary Threshold)
- ❌ Smaller corporation tax deduction
- ⚠️ Below the Lower Earnings Limit of £6,500
Warning: At £5,000, you're below the Lower Earnings Limit. You won't get a qualifying year for State Pension unless you have other employment or credits.
Strategy 3: £8,840 (No Employee NI, Above LEL)
Pay yourself £8,840 per year — above the Lower Earnings Limit (£6,500) but below the Primary Threshold (£12,570), so no employee NI. However, the Secondary Threshold is now £5,000, so employer NI applies on the excess: (£8,840 - £5,000) × 15% = ~£576.
This strategy was more attractive when the Secondary Threshold was higher. In 2025-26, it doesn't avoid employer NI.
The Employment Allowance
If your company is eligible for the Employment Allowance (£10,500 in 2025-26), it offsets employer NI.
Eligibility: From 6 April 2025, the previous £100,000 employer NI eligibility cap was abolished — there is no longer a prior-year NI-bill threshold to meet. Most small companies that have at least one qualifying employee (other than a sole director) now qualify.
With the Employment Allowance, a £12,570 salary costs zero employer NI in practice (the ~£1,136 is fully offset). This makes Strategy 1 even more attractive.
However: Single-director companies where the director is the only employee do NOT qualify for the Employment Allowance. You need at least one other employee (or a second director).
Salary + Dividends: The Full Picture
Most directors combine salary with dividends:
| Component | Amount | Tax Treatment |
|---|---|---|
| Salary | £12,570 | Deductible from CT. No income tax. Minimal NI. |
| Dividends | Variable | Paid from post-tax profits. Taxed at dividend rates. |
Dividend tax rates 2025-26:
- £0 - £500: 0% (dividend allowance)
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
The combination of £12,570 salary + dividends is almost always more tax-efficient than taking a higher salary, because:
- Dividends avoid NI entirely
- Dividend tax rates are lower than income tax + NI rates
- The salary still gives you the CT deduction
How This Appears on Your CT600
Your director's salary (plus employer NI) is included in your company's expenses, which reduce trading profit:
Turnover (Box 145): £80,000
Less expenses (including salary): -£45,000
of which director's salary: £12,570
of which employer's NI: £1,136
Trading profit (Box 155): £35,000
The salary itself doesn't appear in a specific CT600 box — it's part of your total expenses in the accounts.
Worked Example: £80,000 Company Profit
Scenario: Single director, no other employees, £80,000 turnover, £20,000 other expenses.
With £12,570 Salary
Turnover: £80,000
Other expenses: -£20,000
Director's salary: -£12,570
Employer's NI (15%): -£1,136
Taxable profit: £46,294
Corporation tax (19%): £8,796
Salary (take home): £12,570
Dividends available: £46,294 - £8,796 = £37,498
Dividend tax: £3,237
Total tax paid: £12,033
Total take home: £46,831
With No Salary
Turnover: £80,000
Other expenses: -£20,000
Taxable profit: £60,000
Corporation tax (~20.25%): £12,150 (marginal relief applies)
Dividends available: £60,000 - £12,150 = £47,850
Dividend tax: £3,043
Total tax paid: £15,193
Total take home: £44,807
With no salary, the £12,570 personal allowance is available against dividends — this reduces dividend tax significantly compared with the salary scenario, where the personal allowance is already used up by the salary. The marginal-relief CT calculation: 25% × £60,000 − (3/200) × (£250,000 − £60,000) = £15,000 − £2,850 = £12,150.
Difference: Taking the salary saves £2,024 in total tax and NI and gives you £2,024 more take-home pay. (The salary reduces combined CT + dividend tax by £3,160, which more than covers the £1,136 employer NI cost.)
The Bottom Line
For most single-director limited companies in 2025-26:
Take £12,570 salary + dividends for the rest.
This is the standard advice, and it works for the vast majority of small companies. The salary gives you a CT600 deduction worth ~£2,604 in corporation tax savings.