Everybody’s own personal situation is different so we haven’t attempted to cater for every possible scenario here, but this article seeks to explain the most likely tax efficient ways to extract profit from your business in 2025-26. There is no change to the fact that the best strategy involves a mix of salary and dividends.
What are the changes for 2025-26
There are no changes to tax bands for 2025-26. The tax free band remains at £12,570 and the higher rate band starts at £50,270. The changes that apply for 2025-26 relate to employer national insurance.
There is still no employee national insurance on a Salary of £12,570. However employer national insurance increases to 15% and now starts at £5,000. It should be noted that a salary at the NI free level of £5,000 would not be a qualifying year for state pension purposes.
Tax Efficiency for 2025-26
This scenario would actually apply to multiples of £12,570 business profit if there is more than one owner/manager. There would be £1,136 of employer NI due on a salary of £12,570 (unless employer NI allowance is available), but, nevertheless, this remains the most tax efficient salary, with any additional profits being extracted as dividends. This is because:
- It will utilise your Personal Tax-Free Allowance.
- Is seen as an allowable business expense, which could reduce your corporation tax.
- It is a qualifying year for state pension purposes
If the company qualifies for the employer national insurance allowance, which is raised to £10,000, then there would still be no employer NI to pay on this salary.
This strategy assumes the owner/manager has no other additional sources of income (e.g. other employment or property rental income)
On business profits of les than £12,570 you could elect to still pay the same salary as above and any loss created in the company could be carried forward against future profits.
Summary
The most tax efficient salary for 2025-26 is £12,570 in most circumstances. However other options exist, such as:
Salary £5,000. No employer national insurance would be due but this would not be a qualifying year for state pension purposes. There is little advantage to this level of salary other than avoiding the administrative hassle of paying employer NI. The overall tax burden between company and owner manager is £950 higher compared to a salary of £12,570
Salary £6,500. £255 of employer NI would be due, but this would be a qualifying year for state pension purposes. The overall tax burden is £762 higher than a salary of £12,570.
The strategy could be impacted by other sources of income.
Book a meeting with us today to discuss how we can support your e-commerce. Our accounting team specialises in e-commerce and can provide tailored advice to ensure your business is tax efficient.