Understand how PAYE and NIC tax bands work for the 2025\/26 tax year.<\/p>\n\n\n\n
PAYE (Pay As You Earn):<\/strong> This is Income Tax paid on your salary \u2013 it is the main tax employees pay in the UK (see rates below). PAYE is automatically calculated and reported by your employer (your limited company) via payroll.<\/p>\n\n\n\n NIC (National Insurance Contributions):<\/strong> Although NIC and PAYE are calculated differently, NIC is often viewed as another form of tax on earnings. Employee’s NIC is deducted from pay, while Employer’s NIC is an additional cost to the company. It contributes towards certain state benefits, including the State Pension.<\/p>\n\n\n\n Salary:<\/strong> Receiving a salary through your company is generally a tax-deductible expense for the business, reducing its Corporation Tax liability.<\/p>\n\n\n\n Dividends:<\/strong> The other main way directors extract funds from their company is through dividends, which are paid out of post-tax profits.<\/p>\n\n\n\n Typical Full-Time Employee PAYE & NI Rates (2025\/26)<\/strong><\/p>\n\n\n\n **PAYE and NIC thresholds apply to income above the Personal Allowance. The Employer\u2019s NIC only applies to earnings above the \u00a35,000 secondary threshold.<\/p>\n\n\n\n The table above shows Employee’s (Primary) Class 1 NIC deducted from pay. There is also an Employer’s (Secondary) Class 1 NIC charge payable by the company on salaries above the relevant threshold (which is \u00a35,000 taxed at 15% for 2025\/26).<\/p>\n\n\n\n Example (General Employee):<\/strong> For an employee earning \u00a330,000 per year:<\/p>\n\n\n\n Annual gross salary: \u00a330,000.00<\/p>\n\n\n\n Employer’s NIC (\u00a330,000 \u2013 \u00a35,000) x 15%: \u00a33,750 (using 2025\/26 threshold for illustration)<\/p>\n\n\n\n Total cost to employer: \u00a333,370.<\/p>\n\n\n\n To receive a salary, your company needs a PAYE scheme registered with HMRC. We handle this registration for you as standard.<\/p>\n\n\n\n Taking a salary is a tax-deductible expense for your company. The optimal salary balances tax efficiency (considering Income Tax, NIC, and Corporation Tax) with administrative simplicity and State Pension contributions. Based on 2025\/26 rules, here are the main options:<\/p>\n\n\n\n Why:<\/strong> This level uses your full tax-free Personal Allowance (\u00a312,570). While it triggers Employer’s NIC for single-director companies, the Corporation Tax saving on the salary makes it the most tax-efficient overall strategy for extracting this amount.<\/p>\n\n\n\n Single Director Companies:<\/p>\n\n\n\n Companies with 2+ Directors\/Employees:<\/p>\n\n\n\n State Pension:<\/strong> This salary is above the Lower Earnings Limit, so it counts as a qualifying year for the State Pension.<\/p>\n\n\n\n Why:<\/strong> This salary is below the thresholds for both Employee’s and Employer’s NIC, meaning no NIC payments or associated administration are required.<\/p>\n\n\n\n Considerations:<\/strong><\/p>\n\n\n\n Regardless of the salary chosen, your company must file a Real Time Information (RTI) return with HMRC each month payroll is run (even if the tax\/NIC due is \u00a30). As part of our service, we prepare and file these returns for you.<\/p>\n\n\n\n (1) If you choose the \u00a312,570 salary (as a single director), Employer’s NIC of \u00a31,135.50 will be due for the year. We will calculate this and advise you quarterly on the amounts and deadlines (typically 22nd July\/Oct\/Jan\/Apr).<\/p>\n\n\n\n (2) If you choose the \u00a34,992 salary, no PAYE or NIC payments will be due.<\/p>\n\n\n\n (3) If you are a multi-director\/employee company eligible for the Employment Allowance and choose the \u00a312,570 salary, typically no Employer’s NIC payments will be due as the allowance covers the liability.<\/p>\n\n\n\n (4) If you choose a salary different from these options, we will calculate any PAYE\/NIC due and advise you accordingly.<\/p>\n\n\n\n We are often asked if a director’s salary counts towards the State Pension.<\/p>\n\n\n\n To count as a “qualifying year,” your earnings must be at or above the Lower Earnings Limit (LEL) for National Insurance (\u00a36,500 in 2025\/26).<\/p>\n\n\n\n The recommended salary of \u00a312,570 per year DOES meet this requirement.<\/p>\n\n\n\n The alternative salary of \u00a34,992 per year DOES NOT meet this requirement.<\/p>\n\n\n\n Most people need 35 qualifying years for the full new State Pension (or 30 years for the old basic State Pension, depending on age). You do not need to actually pay NIC contributions for a year to qualify, just earn above the LEL.<\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" Understand how PAYE and NIC tax bands work for the 2025\/26 tax year. Key Terms and Rates PAYE (Pay As You Earn): This is Income Tax paid on your salary \u2013 it is the main tax employees pay in the UK (see rates below). PAYE is automatically calculated and reported…<\/p>\n","protected":false},"author":1,"comment_status":"open","ping_status":"closed","template":"","format":"standard","meta":{"footnotes":""},"ht-kb-category":[35],"ht-kb-tag":[],"class_list":["post-530","ht_kb","type-ht_kb","status-publish","format-standard","hentry","ht_kb_category-2025-26-tax-guides"],"yoast_head":"\nEarnings Band<\/td> PAYE Rate<\/strong><\/td> Employee’s NI Rate<\/strong><\/td> Employer’s NI Rate<\/strong><\/td><\/tr> \u00a30 to \u00a312,570<\/td> 0%<\/td> 0%<\/td> 0% (up to \u00a35,000**)<\/td><\/tr> \u00a312,571 to \u00a350,270<\/td> 20%<\/td> 8%<\/td> 15% (above \u00a35,000**)<\/td><\/tr> \u00a350,271 to \u00a3125,140<\/td> 40%<\/td> 2%<\/td> 15%<\/td><\/tr> Over \u00a3125,140<\/td> 45%<\/td> 2%<\/td> 15%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Employers NI<\/h2>\n\n\n\n
Registration for PAYE and NIC<\/h2>\n\n\n\n
Choosing Your Director’s Salary for 2025\/26<\/h2>\n\n\n\n
Recommended Salary: \u00a312,570 per year (\u00a31,047.50 per month)<\/strong><\/h3>\n\n\n\n
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Alternative Salary (Admin Simple): \u00a34,992 per year (\u00a3416 per month)<\/h3>\n\n\n\n
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Monthly RTI Returns<\/h2>\n\n\n\n
Paying PAYE and NIC<\/h2>\n\n\n\n
Eligibility for the State Pension<\/h2>\n\n\n\n