Remuneration planning for non-shareholding directors!

How to Minimise NI Costs for Non-Shareholding Directors

If you own a company and have appointed directors who don’t own shares, you need to consider how to structure their pay in a tax-efficient way, especially with the National Insurance (NI) changes coming in April 2025.

Why Dividends Aren’t an Option

Company owner-managers can take dividends to reduce tax and NI, but this strategy isn’t available to directors who don’t own shares. Instead, their income must come from salary and/or benefits.

Balancing Salary and Benefits

Since directors must receive salary instead of dividends, you should optimise their pay to minimise NI costs by using a mix of:

Salary – This is subject to NI contributions, but there are ways to reduce the impact.

Benefits (e.g., medical insurance, gym membership, company car) – These are also taxable but are treated differently for NI.

How Salary and Benefits Affect NI

From April 6, 2025, the first £5,000 of salary per year is NI-free.

Employers must pay 15% Class 1 NI on salary above this threshold.

Employees pay 8% NI on salary between £12,570 and £50,270 and 2% thereafter.

Class 1A NI is charged at 15% on benefits.

Example 1 – Jamie’s Salary and Benefits Mix

Jamie is a director of Random Co name Ltd. In 2025/26, Random Co name Ltd pays him a salary of £40,000 per year. The total NI bill is £7,444 (£5,250 paid by Acom and £2,194 by Jamie).

If instead, Jamie was paid £33,000 in salary and received £7,000 in benefits (medical insurance, gym membership, etc.), the total NI bill drops to £560 because benefits are taxed differently for NI purposes.

✔ Tip: Providing more benefits instead of salary can reduce NI costs and increase the director’s take-home pay.

✔ Tip: To maximise NI savings, the company (not the director) should directly contract for the benefits (e.g., paying the gym provider).

Example 2 – Janet and John’s Different NI Costs

Janet and John are directors of Another Random Co name Ltd (a subsidiary of Random Co name Ltd). They can’t receive dividends, so they are paid in salary and benefits only.

Janet: Receives £5,000 salary (up to the NI-free threshold) and £10,000 in benefits.

NI bill: £1,500 (£0 on salary, £1,500 on benefits).

John: Receives the entire £15,000 as benefits only (no salary).

NI bill: £2,250 (Class 1A NI at 15% on benefits).

Since John doesn’t take salary, he loses out on the £5,000 NI-free threshold, making his NI bill higher than Janet’s.

✔ Tip: To minimise NI, directors should always take at least £5,000 in salary before taking benefits.

Key Takeaways

Pay directors at least £5,000 in salary (the NI-free amount).

Use benefits instead of higher salaries to reduce NI costs.

The company should directly contract for benefits (not the director) for the best tax savings.