Optimising Director PAYE in 2025 – navigating National Insurance changes for limited companies

Following the changes to the employer National Insurance contributions, some concerns have been raised over the optimum amount a director should receive through PAYE on their Limited Company.

For employee national insurance, the allowance is £12,570 per annum before any Class 1 employee national insurance becomes payable.

The lower earnings limit which ensures that you receive a qualifying year for state pension and goes towards receipt of certain state benefits is £6,500 per annum.

This means that earnings taken through PAYE between £6,500 and £12,570 will not incur any employee deductions.

I am sure you are now thinking what about employer national insurance?

From April 2025 the government lowered the level at which employer national insurance is applied to £5,000. Anything processed in excess of that becomes payable at 15%.  Why pay it you may ask? You may not have to.

The government also removed some of the restrictions on claiming employment allowance. If you have a payroll with two or more directors/employees earning above £5,000, providing it is a qualifying entity, the £10,500 per annum allowance can be claimed.

This allowance offsets the employer national insurance that subsequently becomes due on the amount over £5,000.  It therefore makes sense to process the maximum £12,570 per annum to obtain the qualifying year and the access to certain state benefits.

A word of caution; one director on your payroll with no other employees means that you cannot claim employment allowance. In order to obtain your qualifying year for state pension you will need to pay employer national insurance.  Please see the link below on how to make the payment:

https://www.gov.uk/pay-paye-tax

You may note that there is no mention of tax.  Do be aware of your tax code as that may influence your decision, as could corporation tax. For these areas please do consult one of our tax specialists for the optimum solution for your personal circumstances. Please feel free to get in touch by emailing info@streets.uk or calling your local office.

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