Why have the PAYE/NIC amounts changed?

Change in Pay

PAYE tax and NIC amounts are based on a percentage of pay, so if your pay changes, these deductions are likely to change in the same direction. A change in pay might also put you into a different tax band so the rate of PAYE/NIC may have changed.

Change in PAYE Tax Code

The PAYE deductions are based on your PAYE Tax Code. The standard tax code is 1257L which gives you an annual tax-free allowance of £12,570. In other words PAYE is not deducted from the first £1,047.50 of pay per month. Generally, if your PAYE code increases, you get more of a tax-free allowance so the PAYE deductions decrease, and vice versa. The PAYE tax code is determined from the employee’s joining details, such as the starter checklist and P45, then can only be changed by HMRC.

Director’s NIC

NIC for directors is usually calculated on an annual basis. So if their year to date pay is below the annual NIC thresholds, no NIC is charged. When their year to date pay goes over the annual thresholds they pay the full rate of NIC on the excess. There are two starting thresholds for NIC – £5,000pa for Employers NIC and £12,570pa for Employees NIC (from 2025/26). So directors on a small salary, typically around £12,570pa, will notice that they pay no employees NIC at all, the company pays no employers NIC in April to July, and then the company starts paying employers NIC in August, increasing in September then consistent until March.

It is usually still worth paying a salary of over £5,000pa if the company is profitable and the director has no other income outside of the company. This is because the company is saving corporation tax on the whole salary at between 19% and 25%, which is more than the company will pay in employers NIC at 15% on the amount exceeding £5,000. If the director has other income from outside of the company, income tax is usually also payable on the salary, so it becomes cheaper to receive dividends than a salary of over £5,000pa.