Employer National Insurance changed significantly in April 2025, and the changes affected the economics of director remuneration directly. The rate increased from 13.8% to 15%, and the threshold at which it becomes payable dropped from £9,100 to £5,000 per year. Together, these two changes increased the employer NI cost of a typical director salary by around £600–£700 per year.
- Employer NI rate from April 2025: 15% (up from 13.8%)
- Secondary Threshold (where employer NI starts): £5,000/year (down from £9,100)
- Employer NI on £12,570 salary: £1,135.50/year (was £479.46)
- Employment Allowance: £10,500 — but sole director companies cannot claim
- £12,570 salary remains optimal for most directors despite the increased NI cost
What changed in April 2025
Two simultaneous changes to employer National Insurance took effect from 6 April 2025, with significant impact on director salary planning:
| Parameter | Pre-April 2025 | From April 2025 | Change |
|---|---|---|---|
| Employer NI rate | 13.8% | 15.0% | +1.2 percentage points |
| Secondary Threshold (per year) | £9,100 | £5,000 | −£4,100 |
| Employment Allowance | £5,000 | £10,500 | +£5,500 |
How the changes affect a £12,570 director salary
| Pre-April 2025 | From April 2025 | |
|---|---|---|
| Salary | £12,570 | £12,570 |
| Employer NI calculation | (£12,570 − £9,100) × 13.8% | (£12,570 − £5,000) × 15% |
| Employer NI payable | £479.46 | £1,135.50 |
| Increase in cost | — | +£656.04 per year |
The employer NI cost on the optimal director salary has more than doubled. This is a significant change — but as the full analysis below shows, £12,570 remains the optimal salary for most sole directors despite the increase.
Why £12,570 still works despite higher employer NI
The net cost calculation for paying a director £12,570 in salary:
| Item | 2026-27 figures |
|---|---|
| Gross salary paid to director | £12,570 |
| Employer NI payable | £1,135.50 |
| Total company cost | £13,705.50 |
| CT deduction on total cost (at 19%) | −£2,604.05 |
| Net cost to company | £11,101.45 |
| Director receives (no employee NI, no income tax) | £12,570.00 |
| Director's gain over net company cost | +£1,468.55 |
The company spends £11,101 net (after CT saving) and the director receives £12,570 in cash. That positive difference is the tax efficiency of salary over dividends — even after the increased employer NI.
Comparison: £5,000 salary vs £12,570 salary
Some directors considered dropping to £5,000 (just below the Secondary Threshold) after April 2025 to avoid employer NI entirely:
| £5,000 salary | £12,570 salary | |
|---|---|---|
| Employer NI | £0 | £1,135.50 |
| CT deduction on salary | £950 | £2,388.30 + £215.75 = £2,604.05 |
| Net company cost | £4,050 | £11,101.45 |
| Director receives in salary | £5,000 | £12,570 |
| Difference in director's pocket | — | +£7,570 in salary |
| Difference in net company cost | — | +£7,051 more spent |
| Net benefit of higher salary | — | +£519 in director's pocket at nil income tax cost |
The £12,570 salary is still more efficient — the director gets an extra £7,570 in salary at a net company cost of only £7,051 more. The £519 surplus comes from the CT deduction exceeding the employer NI cost.
The breakeven salary: The optimal salary is the point where the CT saving on the combined salary + employer NI exactly equals the employer NI paid. With 15% employer NI and 19% CT, the maths still favours salary up to the personal allowance. At higher CT rates (25%), the advantage is even clearer.
Directors with other employees: the Employment Allowance
If your company has at least one other employee (not just you as a director), it may qualify for the Employment Allowance of £10,500 per year. This offsets employer NI payments, making higher salaries significantly more efficient:
| Scenario | Employer NI on £12,570 salary | After Employment Allowance |
|---|---|---|
| Sole director only (cannot claim EA) | £1,135.50 | £1,135.50 |
| Director + one other employee (can claim EA) | £1,135.50 | £0 (EA more than covers it) |
For companies that can claim the Employment Allowance, the salary strategy becomes even more attractive — the employer NI cost is largely or wholly eliminated by the allowance.
Secondary Threshold vs Primary Threshold
| Threshold | Who pays | 2026-27 rate | Annual threshold |
|---|---|---|---|
| Secondary Threshold | Employer (company) | 15% | £5,000 |
| Primary Threshold | Employee (director) | 8% | £12,570 |
At a £12,570 salary: the company pays 15% employer NI on £7,570 (= £1,135.50), and the director pays zero employee NI (salary is at the Primary Threshold). This is why the personal allowance level is the sweet spot — the director pays no income tax and no employee NI.
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Frequently asked questions
Is the £5,000 Secondary Threshold the same as the Primary Threshold?
Was the Employment Allowance increase enough to offset the rate rise?
Will employer NI rates change again in 2026-27?
Is employer NI deductible for corporation tax?
What if I have employees as well as being a director?
Important: This guide is for general information only and does not constitute tax or legal advice. Tax rules change — always verify current rates and thresholds with HMRC or a qualified accountant before making decisions.