Owner-Managed Business remuneration advice post-2025 Autumn Budget

For owner-managed businesses, remuneration plans should be reviewed annually due to the frequent updates to tax rules and legislation. As the start of the 2026-27 tax year draws closer, the Shorts team have produced this guide to highlight the key changes affecting remuneration.

*Everyone’s circumstances are different; therefore, we recommend that you speak to us first before you decide to alter the level of your salary.

Income Tax increase on dividends from 6 April 2026

One of the changes announced in the Autumn 2025 Budget is that the rates of income tax on dividend income will be increasing from 6 April 2026 to the following:

• Basic rate – 10.75% (From 8.75%)
• Higher rate – 35.75% (from 33.75%)
• Additional rate – Remaining at 39.35%

Therefore, the majority of individuals receiving company dividends may see their income tax liabilities rise.

Is it better to take a salary or dividends?

Due to the above, there are some scenarios where salary is now a more cost-effective remuneration method for the company than dividends.

Including a higher gross salary can help maintain the same take home pay for individuals, while the Corporation Tax relief will result in a lower cost to the company.

Individuals with income in the lower and mid-income ranges may still see a benefit in choosing dividends over salary.

But individuals with high yearly earnings or those operating R&D-intensive companies may find taking their company remuneration wholly in the form of salary/bonus may be more tax efficient.

Reminder of changes to Employer National Insurance Contributions (NIC)

As a reminder, the following changes came into effect from April 2025:

• The threshold at which employers pay NICs decreased from £9,100 to £5,000. This threshold is per employee and is based on yearly salary.
• The Employer NIC’s rate increased from 13.8% to 15%.
• The Employment Allowance increased from £5,000 to £10,500. For eligible businesses, this allowance exempts the first £10,500 of employer NICs.
• The £100,000 Employment Allowance eligibility threshold was removed.

Since the changes came into effect, Employers could find that their total NIC liability has increased. Remuneration plans are important, now more than ever, to see whether there are ways of minimising this increased cost to businesses.

As a director, should you lower your salary?

Due to the employer NIC threshold changes, we have reviewed what the impact would be if directors were paid a lower salary of £5,000 instead of £12,570 from their business and then issued themselves with a higher yearly dividend in order to maintain a similar level of take home pay.

Whilst an individuals take home pay wouldn’t change, the company would only receive tax relief on paying a £5,000 salary instead of £12,570, even if it would benefit from having a lower employer NIC liability. We therefore recommend business owners, who remunerate themselves through a combination of a small salary and dividends, opt for the £12,570 salary rather than reducing to £5,000.

Dividend Allowance

The tax-free dividend allowance remains at £500 for the tax year ended 5 April 2027. If you don’t already have dividend income, it could be worth considering a small yearly dividend from your company to utilise this allowance.

Pensions contributions and salary-sacrifice considerations

The Annual Allowance, which is the amount you can contribute into a pension without incurring a pension tax charge is £60,000. It is also worth noting the Annual Allowance is tapered for high earners with income in excess of £260k, and the £60k is reduced by £1 for every £2 above this to a minimum of £10k. 

Pensions Annual Allowances

The Annual Allowance, which is the amount you can contribute into a pension without incurring a pension tax charge is £60,000. It is also worth noting the Annual Allowance is tapered for high earners with income in excess of £260k, and the £60k is reduced by £1 for every £2 above this to a minimum of £10k. Employer pension contributions are tax effective, as they are a tax-free benefit provided to an employee but the employer receives relief from Corporation Tax on the value contributed.

Employer pension contributions are tax effective, as they are a tax-free benefit provided to an employee but the employer receives relief from Corporation Tax on the value contributed. You may want to consider this further if you are not already making employer pension contributions and you would like to increase the value of your pension for retirement. There are other implications to consider when making pension contributions, therefore we recommend you first speak to a financial adviser.  

The government also announced in the 2025 Autumn Budget that from April 2029, National Insurance Contributions relief will only be available on the first £2,000 salary sacrifice pension contributions a year per individual (previously there was no cap). On salary sacrifice pension contributions made above this amount, then employees and employers will be subject to National Insurance Contributions. Whilst this is a couple of years away, this is something owner-managed businesses should keep in mind.

Speak to us about your remuneration plans

This guide contains general recommendations, which may not apply to every business and its owners. If you have any queries about the most efficient way to remunerate yourself, we encourage you to get in touch with our team for advice that is tailored to you and your situation.