State Pension for Directors: Why Payroll Matters More Than You Think
Introduction:
If you’re a limited company director paying yourself mainly through dividends, it’s easy to overlook one crucial detail: your state pension. Many directors don’t realise that unless they’re on payroll and earning enough, they may miss out on qualifying years toward their state pension. The fix? Simple payroll setup with the right minimum salary.
Why This Matters:
Missing even a few qualifying years can reduce your eventual state pension. For something as essential as your future income, a bit of proactive planning now can save a lot of regret later. Setting up payroll properly doesn’t just keep HMRC happy, it protects your retirement income.
The Solution: What Directors Need to Do
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Set Up Payroll: You must be on PAYE and draw a salary through your limited company: not just dividends.
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Pay Yourself Enough: Your salary needs to meet the Lower Earnings Limit (LEL). For 2025/24, that’s £6,500 annually (or £125 per week). This triggers your National Insurance record without requiring you to actually pay NI.
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Use Accounting Software (like Xero): Automate payroll submissions and make sure your records are HMRC-compliant. We help all our clients do this efficiently.
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Track Your NI Contributions: You can check your National Insurance record on the HMRC portal to ensure you’re building up your pension years.
Expert Tips & Common Pitfalls
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Don’t Skip Payroll just because you’re not paying tax: NI qualifying years are based on earnings levels, not tax owed.
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Dividends Alone Don’t Count toward your state pension. Even if you take out £50k in dividends, HMRC won’t credit you unless you’re on payroll at the right threshold.
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Consider a Pension Top-Up Strategy if you’ve missed years in the past: but it’s easier (and cheaper) to stay current.
Call to Action:
Not sure if your setup is pension-compliant? Let’s review your director pay structure together. Book a quick call with Love Accountancy, and we’ll make sure your future income is secure, with minimal hassle now.
About Love Accountancy:
At Love Accountancy, we help directors take control of their finances, without the stress. Whether it’s setting up payroll the right way, staying compliant with HMRC, or planning for the future, we make it all effortlessly easy. We’re a trusted accountant in Exeter and beyond, supporting small business owners across the UK with tech-driven, proactive advice. Let’s grow your business and protect your pension together.