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: ~£1,045 (on £12,570 - £5,000 = £7,570 at 13.8%)
- ✅ Corporation tax deduction: £12,570 + £1,045 employer NI = £13,615 off your profits
- ✅ Qualifies for State Pension (above the Lower Earnings Limit of £6,396)
CT600 impact: Reduces your Box 155 trading profit by £13,615.
At 19% corporation tax, that saves: £2,587 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
- ⚠️ Still qualifies for State Pension (above LEL of £6,396 — actually £5,000 is BELOW this)
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 (Pension + No NI)
Pay yourself £8,840 per year — above the Lower Earnings Limit but below both NI thresholds... except the Secondary Threshold is now £5,000, so employer NI kicks in earlier.
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: Your employer NI bill in the previous year must be under £100,000. Most single-director companies qualify.
With the Employment Allowance, a £12,570 salary costs zero employer NI in practice (the ~£1,045 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: £1,045
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: -£1,045
Taxable profit: £46,385
Corporation tax (19%): £8,813
Salary (take home): £12,570
Dividends available: £46,385 - £8,813 = £37,572
Dividend tax: £3,244
Total tax paid: £12,057
Total take home: £46,898
With No Salary
Turnover: £80,000
Other expenses: -£20,000
Taxable profit: £60,000
Corporation tax (~20.5%): £12,300 (marginal relief applies)
Dividends available: £60,000 - £12,300 = £47,700
Dividend tax: £4,120
Total tax paid: £16,420
Total take home: £43,580
Difference: Taking the salary saves £4,363 in total tax and gives you £3,318 more take-home pay.
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 ~£2,587 in corporation tax savings.