Tax
A £15,570 Personal Allowance? What it could mean for your family company
There are rumours the Chancellor will raise the Personal Allowance from £12,570 to £15,570 in the 28 October 2026 Budget. If it happens, should family company directors raise their salaries to match? Here is what the change could be worth, and the NI and corporation tax angles to weigh.
By David ElliottBSc FCA, Founder & Managing PartnerFigures in this piece were checked on 2 October 2026. Rates and thresholds change, so confirm anything you are relying on.
With the Budget on 28 October now less than four weeks away, there are rumours that the Chancellor is considering raising the Personal Allowance from £12,570 to £15,570. That would be the first increase since 2021, and it would come after the freeze was extended to 2031 in last year’s Budget. Nothing is confirmed yet, of course. Still, for owner-managed companies the question is worth asking now: if the allowance goes up by £3,000, should directors’ salaries go up with it?
A typical family company
Take a typical small eba client. Husband and wife are directors and shareholders of a profitable trading company. Each takes a salary of £12,570, with the rest of their income paid as dividends, and both are basic-rate taxpayers. Their teenage son works in the business and is also paid £12,570.
At that salary, none of them pays income tax or employee National Insurance. Employer NI is 15% above the £5,000 Secondary Threshold, which comes to £1,135.50 for each director. Because two directors are paid above that threshold, the company can claim the £10,500 Employment Allowance, so that employer NI cost is wiped out. The son is under 21, so no employer NI is due on his pay anyway.
Step one: the gain with no change at all
The Personal Allowance can be set against dividends as well as salary. So even if the family changes nothing, each director will have £3,000 more income, tax-free. For a basic-rate taxpayer that is £3,000 of dividends no longer taxed at 10.75%, a saving of £322.50 each.
The gain is bigger if the Chancellor keeps the basic-rate band at £37,700, which would lift the higher-rate threshold to £53,270. A director with dividends above that level would also see £3,000 move from the 35.75% rate down to 10.75%, making a total saving of up to £1,072.50. If instead the higher-rate threshold stays at £50,270, the saving is £322.50 whatever the director earns.
Step two: raising salaries to £15,570
This is where the corporation tax angle comes in. Salary is tax-deductible for the company, whereas dividends are not. Each extra £3,000 of salary saves corporation tax at the company’s marginal rate:
- 19% (profits up to £50,000): £570 per person, £1,710 for the family
- 25% (profits over £250,000): £750 per person, £2,250 for the family
- 26.5% (the effective marginal rate between £50,000 and £250,000): £795 per person, £2,385 for the family
Would there be more NI to pay?
That depends on whether employee NI thresholds rise as well.
Since 2022, the employee Primary Threshold has matched the Personal Allowance at £12,570, but nothing in law ties the two together, and it is currently frozen until 2031. If the Personal Allowance rises and the NI threshold does not, a salary of £15,570 would attract employee NI at 8% on the extra £3,000. That is £240 each, and it applies to the son too once he is 16.
Employer NI would rise by £450 for each director. For our family this is still covered by the Employment Allowance, since the directors’ total employer NI would still be only about £3,200. The son’s pay remains free of employer NI because of the under-21 relief.
Is a matching NI rise likely?
Each £1 increase in the NI threshold costs the Treasury a lot of money, at a time when it needs every pound it can find. Even so, leaving the two thresholds out of line would bring back the complexity that aligning them was meant to remove, and it would mean a Personal Allowance “giveaway” that partly comes back as NI for low earners. I would call it no better than 50/50 as to whether this happens. Separately, I would not expect the employer threshold to move back up from £5,000, because that cut raises a great deal of revenue.
The numbers for each director
For each £3,000 of company profit, here is what a director actually keeps, taken as salary versus left as a dividend, assuming the employee NI threshold stays frozen:
| Per £3,000 of profit | Company at 19% | Company at 25% | Company at 26.5% |
|---|---|---|---|
| Paid as salary (after 8% NI) | £2,760 | £2,760 | £2,760 |
| Paid as dividend (after CT, covered by the allowance) | £2,430 | £2,250 | £2,205 |
| Extra gain from salary | £330 | £510 | £555 |
If the NI threshold also rises, add another £240 to each gain.
So the basic-rate director in a small-profits company gains £322.50 from the allowance itself, plus £330 from moving to the higher salary. That is about £650 a year each, or £1,300 for the couple. For their son, the extra £3,000 of pay costs the company £2,430 after corporation tax relief, and he keeps £2,760 of it.
Across the household, the overall gain is roughly £1,900 to £2,600 a year, depending on the company’s tax rate and what happens to NI.
Important caveats
Is the company eligible for the Employment Allowance?
A company whose only employee paid above £5,000 is a sole director cannot claim it. Without it, the extra employer NI of £450 per director largely cancels out the advantage for a company paying 19% corporation tax, although salary would still win at the higher corporation tax rates of 25% and 26.5%.
Family members’ pay must be justified
Any salary paid to a son or daughter has to reflect real work at a commercial rate, otherwise HMRC can refuse the corporation tax deduction. Employment law limits on hours for under-16s also apply.
There is no rush to act
Any change is likely to start from April 2027, so wait until the Budget has been delivered before changing payroll.
What next?
If the increase goes ahead, many family companies will want to move salaries up to £15,570 from April 2027. Whether that is right for your company depends on its profit level, whether it can claim the Employment Allowance, and what the Chancellor decides on NI thresholds. We will publish an update straight after 28 October. As always, eba will advise you on the best solution for you.
Frequently asked questions
Is the Personal Allowance going up to £15,570?
It is a rumour ahead of the 28 October 2026 Budget, not a confirmed change. A rise from £12,570 to £15,570 would be the first increase since 2021, reversing part of a freeze that currently runs to 2031. Treat it as a possibility to plan around, not a certainty.
Should I raise my director’s salary to £15,570?
Only if the increase goes ahead, and even then it depends on your company’s profit level, whether it can claim the Employment Allowance, and what happens to the National Insurance thresholds. Any change would most likely take effect from April 2027, so there is no need to alter payroll before the Budget is delivered.
How much could a family company save?
In the example of two director-shareholders plus a working teenage child, roughly £1,900 to £2,600 a year across the household, depending on the company’s corporation tax rate and whether the NI thresholds rise alongside the allowance.
Does a higher salary mean more National Insurance?
If the employee NI threshold stays frozen while the allowance rises, yes: 8% employee NI on the extra £3,000, which is £240 per person, and £450 more employer NI per director, though that is usually covered by the £10,500 Employment Allowance.
Can I put my child on the payroll through the company?
Yes, provided the pay reflects genuine work at a commercial rate, otherwise HMRC can deny the corporation tax deduction. Employment law limits on working hours for under-16s also apply, and employee NI starts to apply to their pay from age 16.