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Business Companion Newsletter March 2025
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Welcome to our Business Companion Newsletter for March 2025

Tax Planning your Director’s Salary
Normally accountants help you plan your way around taxes like VAT, Corporation Tax and Income Tax.  Now there is a new tax we have to worry about – Employer NI.  This is now a hefty 15% on salaries above £5,000pa.

Our key tax saving opportunity for 2025/26 is to use the Employment Allowance which can cancel this significant tax.  But only some businesses will qualify (see below).

March 2025

• Can my business claim Employment Allowance?

• Tax Rates & Allowances from April 2025

• Pay structure for directors 2025/26

• Check for state pension gaps

• Our practice: who are we?

Can my business claim Employment Allowance?


The Government is changing who can claim Employment Allowance (EA).

One Director Companies
Businesses with only one employee who is a director/employee are not eligible for EA.  In order to be eligible there needs to be a second employee or director and both Directors/ Employees need to be paid at or above the secondary threshold (£5,000) to qualify.

What does this mean for you?
Most businesses will face significantly higher costs from the rising contribution rate and lower threshold of Employers NI.  It is therefore vital that you are able to claim EA which will cover (up to £10,500) of potential Employer NI. A few businesses may benefit from the increased Employment Allowance depending on their NI liability. But larger business will not have enough EA to cover their increased Employer NI liability.

Tax Rates and Allowances from April 2025


Rates & Allowances from April 2025

National Insurance & Employment Allowance
  • Employment Allowance (EA) increases from £5,000 to £10,500 per year.
  • The Employer NI (Secondary Class 1) contributions rate increases from 13.8% to 15%. This applies above the Secondary Threshold.
  • The Secondary Threshold decreases from £9,100 per year to £5,000 per year from April. 
  • The Lower Earnings Limit increases slightly (from £6,396) to £6,500 per year. This is the threshold to qualify for NI (state pension) credits, but there is no employee NI to pay (until the Primary earnings Threshold).
  • The Primary Earnings Threshold remains at £12,570 per year. This is the threshold at which most employees start paying Employee NI at 8% (2% above Upper Earnings Limit of £50,270 per year).
  Income Tax & Dividends
  • The tax-free personal allowance remains at £12,570 per year (until 5 April 2028).
  • The tax-free dividend allowance remains at £500.
  • The basic rate band limit remains at £50,270, beyond which income tax jumps to 40%.
  • Income tax continues to jump to 60% beyond £100,000pa.
  • There is no change in the additional rate threshold which remains at £125,140pa.

Pay Structure for Directors 2025/26


It becomes vital that you are able to claim (up to) £10,500 Employment Allowance.  If you cannot afford two salaries of £5,000 each then payment of any salary is no longer tax efficient, dividends are better. If you have seven staff each on a modest £15k salary then you will exhaust your EA.  In these circumstances also dividends become a more tax effective route than pay rises.

Issues to Consider

1. Employment Allowance (EA) Eligibility – See article above.
Will the employer qualify? If so is there any EA (to £10,500) left to use on the proprietor’s salary?

If the Employer NI on your director salary is covered by EA then it will probably be best to pay yourself a £12,570 salary and any remainder as dividends.

But if If you can’t use EA to cover your Employer NI then it will be best to pay yourself a salary of just £5000pa and any extra as dividends.  

If you need to receive a salary to get a full year of NI credit (in order to qualify for a full state pension), then your salary will need to be at least at the Lower Earnings Limit. So you need to pay yourself a salary of at least £6,500pa.  You will have to pay some Employer NI on this.

2. Corporation Tax
Consider the effect rate of CT relief on company profits (19% or 26.5%)? Is the company claiming R&D tax credits? If you are paying a Corporation Tax at the higher rate, then paying extra dividends will become more expensive so you should prioritise salary over dividends.
    
For more detailed advice about your particular situation just contact us.

Check for state pension gaps


Have you got any gaps in your National Insurance record?  If you do have gaps it may still be possible to increase your state pension by making voluntary national insurance (NI) contributions by 5 April 2025.
 
You will need 35 qualifying years for the full new state pension.  People with between 10 and 35 qualifying years will receive an apportioned amount based on their contribution history.

The previous government extended the deadline to pay voluntary NI contributions to 5 April 2025 for those affected by the new state pension transitional arrangements.
 
It is possible to make voluntary NI contributions by 5 April 2025 for:
  • the tax years from 6 April 2018 to 5 April 2024, under the rules normally applying; and
  • the tax years from 6 April 2006 to 5 April 2018, under the extension announced by the previous government.   
From 6 April 2025, it will no longer be possible to make voluntary contributions in respect of the tax years from 6 April 2006 to 5 April 2019. Normally, the deadline is 6 years from the end of the year.
 
Action to take
Check you NI record using HMRC’s online service. It is also possible to request a paper statement;
  • calculate whether making a payment could increase your state pension; and
  • use the ‘pay by bank account’ option in the online service if a payment is required. HMRC say that payments made in this way will typically be reflected in the person’s NI record within 5 working days.

Our practice: who are we?


Simple Accounting Ltd is an accountancy practice with clients everywhere between Scotland and the South Coast, between North East England, North Wales and the West Country.  

We are focussed on larger small businesses: usually companies with payroll and VAT. We specialise in those businesses that want tightly controlled books, effective management accounting and responsible declarations to tax, authorities and lenders.  Our clients include small factories, service companies and artists.  These client have specific problems such as import/export, complex VAT, reporting issues, stock control, debt control, multi currency, job costing, and royalty tracking.

We operate much more closely with our clients than other accountants do.  We act more like business advisors or as the Financial Director that the business cannot afford to employ directly. Have a look at what we include as part of our Business Companion Service.

We often support firms using software that we have installed for them including MYOB and AccountEdge alongside others.  We understand the needs of the various tax & government authorities without assuming that this means a new bookkeeping software is required.  

Some past clients have closed their businesses, mainly because of retirement.  Other clients prosper.  And we have a batch of new clients.  Overall we have maintained the turnover of our client businesses. They now have a combined annual turnover of £11.4 million and we run payrolls for 87 staff.  Ten years ago we were only responsible for a combined annual turnover of £6 million and 120 staff.  

We have focussed our work on supporting fewer larger businesses over recent years, and have helped our existing clients become more profitable, successful and faster growing.  We currently have just 36 clients.

We grow entirely by recommendation.  If you know of a business could benefit from our methods we would be delighted to be asked to meet them.
 

Need Help?


Please contact us if we can help you with these or any other tax or accounts matters.

In addition, if there’s anyone else who you think would benefit from the newsletter, please forward the email to them or ask them to contact us to be added to the newsletter list.

New Clients Welcome


If you are not already a client and are interested in becoming one, we would love to discuss how we can help and provide you with a competitive quote for our services.

See details of our Business Companion Service.

About Us


Simple Accounting Limited offers a cost effective Business Companion service to business owners who use MYOB, Acclivity, Mamut, Solar Accounts, Quickbooks or Xero.

‘All clients using these software packages can benefit from our support. Visit our website www.simpleaccounting.co.uk for a look at the resources on offer.’
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