National Insurance (NIC)
What it is
Contributions paid by employees, employers and the self-employed to fund UK state benefits including the NHS and state pension. Directors paying themselves a salary through PAYE pay employee NICs; the company pays employer NICs on top.
Why it matters
One key reason director-shareholders often prefer dividends over salary is to minimise NIC. However, paying a small salary up to the NIC threshold (currently £12,570) protects state pension entitlement at no NIC cost.
Common mistake
Paying no salary at all to avoid NIC entirely, thereby forfeiting years of state pension qualification. A salary at exactly the Lower Earnings Limit qualifies you without triggering NIC.
Official source
GOV.UK — National Insurance ↗Related
Disclaimer
General educational guidance only — not legal, tax, accounting, immigration, investment or financial advice. We don't guarantee the information is complete, current or suitable for your situation. Always check official sources (GOV.UK, Companies House, HMRC, the relevant professional body) and speak to a qualified professional before acting. Last reviewed: June 2026.