We have spoken with many of you and managed expectations that following these changes we would comment on salary versus dividend positions prior to the commencement of the 25/26 tax year, in order to give oversight on what makes for an optimal salary versus dividend mix for our owner managed businesses.

For the tax year 2024/25, the advice for the majority of Company Directors was to provide and payroll a salary of £758 per month. 

The advice now, for the 2025/26 year, is to pay a gross salary of £12,570 per annum, per Company Director. In most cases, this won’t crystallise any income tax via PAYE, as a salary at this level should be covered by the tax free personal allowance, but it will crystallise a National Insurance charge for the employer. This cannot be avoided if your annual salary is to qualify you for a state pension credit.

So the optimal mix of salary to dividend now swings to slightly more remuneration by salary than that paid in 24/25 tax year. Given the increased rates of corporation tax, when worked through, this provides the more efficient/ambient mix.

The best method to physically process this through your payroll will be to pay £416.58 per month for the months 1-11 of the 25/26 tax year, then to make one final payment of £7,987.62 in month 12 (i.e. March 2026) would be our suggestion. By this method, you only pay any Tax and National Insurance due in the final month, rather than a requirement to pay 12 smaller payments throughout the tax year. This route reduces the administrative burden, was our thinking.

If we run your payroll for your Company, and you are a Director on it, this is how we propose to provide your 2025/26 salary in to payroll software.

There are some circumstances where the strategy above may not be right for you.

• You are a director but have income from another source outside of your limited company (i.e. rental income).
• How much tax you pay or save across the combination of your company and you personally is more important than what you personally take home in cash, and you can afford to sacrifice personal take-home pay for the benefit of the company tax position.
• You are already drawing more cash than you need to fund your lifestyle.
• You are planning on drawing between £100,000 and £125,000 of income from your company.
• You have income of over £50,000 from other sources.

For these bespoke circumstances, we will need to review the salary level on a case by case basis. We shall be doing this over the next couple of weeks and will be in touch if we believe that a salary of £12,570 for the 25/26 tax year is not the most beneficial level for you.

Also, by way of note, as from April/May of this year, the Practice will be migrating its payroll software from Sage Desktop to an online Cloud software called BrightPay. So for those of you, for whom we run payroll services:-

We will process your payroll in much the same way, using OpenSpace to provide copy payslips, payroll reports and the PAYE letters for your own records, but there will be differences in how the payslips will look, the types of reports that you can have and the mechanism to send all employees their payslips. We have not made this decision lightly, as we are aware, that you, like us, have become very used to the type of reporting we have been able to offer under the Desktop software, however, as we work through a remote hosted server, the existing Desktop payroll programme has become increasingly temperamental and is now unsupported. So change is a must.

BrightPay  offers us greater flexibility of processing, and we are still able to provide the bespoke services that we currently do, including department flags, payrolling of benefits, salary sacrifices including pensions, attachment of earnings, deductions etc. But, where you may have been used to being provided several reports when a payroll is finalised, this will now be amalgamated onto one report which can be supplied as both a pdf and csv file. 

We will endeavour to match this report to what you are already being supplied.   

The main difference between the old and new system is how we supply your employees with their payslips. One of the benefits of BrightPay is the Employee Portal and we will be setting this up for every employer. Once a payroll is completed, copies of the employees payslips will be published to each employer’s portal ready to go live on their nominated pay date. For those clients for whom we already email out payslips or who use the Sage Portal for their payslip distribution, there won’t be any need for you to supply us with any extra information. However, for those clients for whom we currently only provide hard copy payslips by post, we will need each employee's email address so that we can set them up for the portal. 

The day before we complete your first pay run on BrightPay we will email every employee instructions on how to use the Portal ready for when their first payslips go live. If, at present, we are only supplying you with payslips on OpenSpace and you would like to take advantage of this new service, please email us with all your employees private email addresses on payroll@englandandcompany.co.uk, and we will be happy to set this up for you. Please note that we will no longer be emailing out payslips direct.

If you have any major concerns or need to speak about this in more detail, then please feel free to contact us and we will endeavour to put your concerns to rest. The principal of how we will process your payroll will stay the same, it is just the mechanism on how we will distribute it that will change.

Many thanks for your continuing business and support.