Changes to NI from April 2025: What directors on low salaries need to know

If you’re a director earning a low salary with no tax liability, you might want to take note of the upcoming changes to NI in April 2025.

From April 2025, NI contributions will apply to all earnings above the Lower Earnings Limit, even if you’re not paying income tax due to your salary being below the personal allowance threshold.

This means that directors who were previously exempt from NI on low earnings may now find themselves liable for contributions.

Changes to NI – what could this mean for you?

Increased Costs – If your salary is on the lower end, you might now face additional NI deductions, potentially reducing your take-home pay.

Budget Planning –  It’s essential to reassess your salary structure and plan for the upcoming changes, especially if you’re in a situation where your current salary was set to minimize tax and NI exposure.

Understanding the impact-  This change might affect small business owners, sole traders, or anyone operating through their own limited company. It’s crucial to be proactive and understand how this could impact your cash flow, pension contributions, and financial planning.

In most circumstances, where directors have previously drawn a low salary, it would still be best practice that directors maintain a salary level of £12,570 rather than reducing their salary to the Lower Earnings Limit (£5,000 for 2025/26) and this would be for the following reasons:

• The higher salary level will incur Employer’s National Insurance of £1,135.50.  However, Corporation Tax relief of between £1,654.05 and £2,306.96 (dependent on the rate applied to the company’s profits) will be obtained on the increased amount of salary. Therefore, a £12,570 salary is still more tax advantageous overall than a reduced salary level from the company’s perspective.
• There may be additional tax savings to be had by drawing the salary as opposed to dividends due to the impact of the dividend rate of Income Tax on the individual. But, this would be dependent on your individual circumstances.
• Drawing the £12,570 salary level ensures that you maintain your qualifying year for the purposes of the State Pension

It should also be noted that if the director is not the sole individual on the payroll of the company, the company may also be able to obtain an increased Employer’s Allowance of £10,500 to offset against any increased Employer’s National Insurance liability.

Changes to NI – what can you do now?

Firstly, we always recommend you seek professional advice.  Contact us and we can work with you to review your salary structure and ensure you are compliant with the new rules.

Changes to NI – start budgeting now for the additional cost of National Insurance contributions.

Many business owners will want to start budgeting now for the additional NI costs.  You could consider alternative strategies, such as adjusting the balance between salary and dividends (where applicable), to minimise the impact.

This change is just around the corner, and staying informed is the key to ensuring your business and personal finances are ready for the changes to NI that are knocking on our door!

If you would like to speak to a member of our team regarding the changes to NI or how these might impact on your affairs, please contact us or telephone us on 020 7870 9050