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What is the most tax efficient way for a director to pay themselves?

Updated: Sep 28, 2023

Now we are entering the next financial year director’s need to review what is the most tax efficient amount to pay themselves.

The optimum director’s salary for 23/24 is £12,570 per annum. This equates to £1,047 per month or £241 per week.

If the director has no other income then they should look to paying themselves the £12,570 to ensure they qualify for state pension without paying any employee contributions. However, with raising the salary above the primary threshold (£9,100) this will mean companies are liable for employers national insurance which is something that needs to be factored in to ensure HMRC are paid in advance of the deadlines.

When to pay £9,100 director’s salary? As mentioned above the optimum director’s salary of £12,570 will incur employers’ national insurance of £478 and this needs to be paid to HMRC. Many businesses do not want the extra burden of HMRC liabilities so the advice to avoid this is for directors to pay £9,100 per annum which removes the HMRC burden but still qualify for a state pension year.

What’s the savings for 1 director:

By increasing the salary from £9,100 to £12,570 will save the company corporation tax of £750 per employee and the overall total saving is £272 per employee after paying employers national insurance.

Employers Allowance If you have 2 employees (including directors) your company may be eligible for the employer allowance, this means you don’t pay employers national insurance on the first £5,000 so a company may not have to pay National Insurance Contributions at all!

Unfortunately, sole director companies are not eligible to claim the employers allowance but as seen above the savings of pay a salary of £12,570 are still favourable. If you would like to know how we can help with the above please call the Cube Accounting office on 01788 815017 or email accounts@cubeaccounting.co.uk

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