Running a business means keeping one eye on the numbers and the other on rule changes. For company directors, the 2025/26 tax year brings a mix of “steady as she goes” and areas where small tweaks can make a big difference to your take-home pay and longer-term plans. Headline points: income tax thresholds in England, Wales and Northern Ireland remain frozen, the dividend allowance stays at £500, employer National Insurance rises to 15 per cent with a lower threshold, and the capital gains tax (CGT) annual exempt amount holds at £3,000. Add persistent inflation into the picture and it’s clear that company directors should review how they pay themselves, how much profit sits in the company, and what to set aside for pensions and future exits.
Why this matters now: more people are paying income tax at higher rates because thresholds are frozen while wages have risen. HMRC projects 39.1 million income taxpayers in 2025/26, with 7.08 million paying at higher rate – a sharp increase on recent years (HMRC, 2025). Inflation is still eating into real returns too: CPI inflation was 3.8% in the 12 months to July 2025 (ONS, 2025). In that context, every decision on salary, dividends, benefits, pension funding and capital planning counts. In this guide we summarise the key 2025/26 rules and the practical steps company directors can take now to stay compliant and improve outcomes. If anything here raises a question about your specific circumstances, we’re here to help.
Income tax bands and frozen thresholds
The main income tax bands in England, Wales and Northern Ireland are unchanged for 2025/26: Personal Allowance £12,570, basic rate 20% to £50,270, higher rate 40% to £125,140, and additional rate 45% above £125,140. The withdrawal of the Personal Allowance still applies between £100,000 and £125,140, creating an effective 60% band for many directors in that range. Threshold freezes continue to draw more people into higher rates as pay increases (HMRC, 2025). If you split income between salary and dividends, review the mix against your household income and any benefits-in-kind to avoid tipping into the next band unnecessarily.
Useful reference: Income Tax rates and bands.
National Insurance: Employer rise and what it means for pay strategy
For 2025/26 the main employee Class 1 rate remains 8% between the Primary Threshold and the Upper Earnings Limit, and 2% above that. The bigger change is for employers: the employer Class 1 rate increases to 15%, and the secondary threshold is reduced to £96 per week (approximately £5,000 per year) from 6 April 2025. That means more of your payroll attracts employer NIC than in prior years. If you run a low-salary/high-dividend model, revisit the optimal director’s salary in light of these employer costs, statutory payment entitlements, and state pension credit considerations.
References: NIC rates and thresholds.
Dividends: £500 allowance and unchanged tax rates
The dividend allowance is £500 for the 2025/26 tax year. Dividend tax rates remain 8.75%, 33.75% and 39.35% across the basic, higher and additional bands. The allowance operates as a 0% band – it does not reduce your taxable income for threshold purposes. Given the low allowance, more modest portfolios and owner-manager dividends fall into charge. Check whether to adjust the timing of dividend declarations, consider spouse or civil partner shareholdings, and make best use of ISAs and pensions for investment income sheltering.
References: Dividend allowance policy note and GOV.UK guidance on tax on dividends.
Capital gains: Smaller annual exemption, bigger planning premium
The CGT annual exempt amount remains £3,000 for individuals in 2025/26. This matters for directors with taxable investments outside ISAs and pensions, and for those planning a sale of shares outside reliefs. Bed-and-ISA transfers, crystallising losses, and timing disposals across tax years are all back on the agenda now the exemption is so much smaller.
Reference: CGT rates and allowances.
Pensions: Still the most flexible planning tool for company directors
The standard annual allowance remains £60,000 in 2025/26, with tapering for high earners and a £10,000 Money Purchase Annual Allowance for those who have flexibly accessed DC pensions. For many company directors, an employer pension contribution from the company remains a tax-efficient way to extract profits, subject to the wholly and exclusively test for corporation tax.
References: GOV.UK on the pension annual allowance
What company directors should check now
- Your salary/dividend split: Re-test the break-even point for director salaries versus dividends and consider how benefits-in-kind affect thresholds.
- Use of allowances: Map your household income to all available 0% and lower-rate bands to avoid waste.
- Spouse or civil partner shares: Consider share class reviews and alphabet shares where appropriate and lawful.
- Investment wrappers: Prioritise wrappers for dividend-producing assets now the allowance is £500.
- CGT housekeeping: Plan disposals across tax years and harvest losses where sensible.
- Record-keeping and compliance: Keep clear board minutes for dividends, payroll records, and ensure Companies House filings are up to date.
A note on the bigger picture
Because thresholds are frozen, more people are dragged into higher bands even without policy rate rises. HMRC’s latest projections show 39.1 million people paying income tax in 2025/26, and 7.08 million at higher rate – up almost 39% on 2022/23. Factor in ONS-reported CPI inflation of 3.8% year-on-year to July 2025 and it’s sensible to expect higher cash tax payments and to build this into cashflow forecasts. Cash in the business can still be directed efficiently: pension funding, R&D (if eligible), capital investment with super-deduction legacy timings considered where relevant, or debt reduction to cut interest costs. The right answer combines tax efficiency with commercial sense.
How we can help company directors in 2025/26
Directors make dozens of tax-sensitive decisions each year – often without realising it. We help map your goals against the current rules, then put a plan in place. Typical support includes:
- Remuneration planning: Salary, dividends and benefits: We’ll model options for different profit levels and household incomes.
- Pension strategy: Company contributions and carry forward: Build retirement wealth while managing corporation and income tax.
- Investment tax wrappers: ISAs, pensions and VCT/EIS suitability: Prioritise the right shelters for yield and growth.
- CGT planning: Disposals, losses and timing: Make the most of the £3,000 exemption and manage rates.
- Compliance tidy-up: Payroll, dividends and filings: Keep paperwork clean to avoid HMRC queries.
If you’d like a personalised review or a quick second opinion before your next board meeting, get in touch. We work with owner-managed businesses and SMEs across a range of sectors, and we keep advice practical and focused on outcomes.
Ready to optimise your 2025/26 plan? Book a short call and we’ll run the numbers for your situation – company directors benefit most when salary, dividends, pensions and timing all pull in the same direction. Speak to us today.