What’s the Most Tax Efficient Director’s Salary?
As a director you’re legally separate from your limited company even if you’re also the owner. This means you’re not allowed to simply keep the profits for yourself in the same way a sole trader can in their business.
Instead, you’ll need to decide how much to pay yourself. The most tax-efficient way to take an income from your own limited company is normally through a combination of a low salary (in the same way as any other employee) and dividend payments.
Taking a salary and dividends
If you’re a director, you’re technically an employee of your own limited company. This is an important point because it means you’re both an employee and an employer – of yourself! But why does it matter?
Employers and employees both pay National Insurance Contributions (NICs) on salary payments, but not on dividends. In that respect it might make sense to pay yourself a smaller salary and make up for it with dividend payments.
But the good thing about taking a salary is that it means you have regular income throughout the year which, because directors are ‘office holders’, can be below minimum wage without breaking any rules.
So how much should you pay yourself from your own company? Paying yourself as a company director is actually a bit of a balancing act in order to be as tax efficient as possible. To get the balance right it’s useful to consider:
- National Insurance contributions as both an employee and as an employer, as well as the benefits of making qualifying payments for the State Pension
- How many people there are in the business
- Tax allowances for dividends
- Income tax allowances
- Tax relief for employee salaries
Sit tight, and we’ll talk you through director’s salaries, and what the optimum amount to pay yourself is. We know it can be confusing, so get an instant quote online if you need more help!
What does National Insurance mean for director’s salaries?
The thresholds for paying employer’s and employee’s NI are at different levels, so this has an impact on the amount of salary you take.
If you take a salary from the business and it’s higher than the National Insurance threshold (the point at which you start paying National Insurance) for both employers and employees:
- Primary Threshold: You, as the employee, will start paying National Insurance on the salary your company pays you
- Secondary Threshold: Your company, as your employer, will start making employer’s National Insurance Contributions on your earnings
It basically means you’re paying National Insurance twice on the same money – which isn’t very tax efficient at all!
The National Insurance thresholds for the 2024/25 and 2025/26 tax years are shown in our table below for both employers and employees. The threshold at which employers start making National Insurance contributions is actually lower, so they start paying NI before employees do. You can also view these figures in our tax rates article.
What are the employer and employee National Insurance thresholds and rates?
This table can seem a bit confusing because the Secondary Threshold (when employers start paying NI) is actually lower than the Primary Threshold (when employees start paying NI). We’re including this because it shows where each threshold starts and ends, which is useful when it comes to working out the optimal director’s salary.
You won’t pay NI or accrue NI benefits (such as qualifying payments towards the State Pension) on earnings below the Lower Earnings Limit. Earnings above the LEL up to the Primary Threshold don’t incur NI either, but you will earn NI ‘credits’ and accrue NI benefits on them.
| Weekly Threshold 2024/25 |
Annual Threshold 2024/25 |
Weekly Threshold 2025/26 |
Annual Threshold 2025/26 |
|
| Lower Earnings Limit (LEL) | £123 | £6,396 | £125 | £6,500 |
| Primary Threshold: Employees pay NI at a rate of 8% on earnings above the threshold. | £242 | £12,570 | £242 | £12,570 |
Secondary Threshold: Employers make NICs on earnings above the threshold.
|
£175 | £9,100 | £96 | £5,000 |
| Upper Earnings Limit (UEL): Employees pay NI at a rate of 2% on earnings above the UEL. | £967 | £50,270 | £967 | £50,270 |
Optimising your director’s salary to qualify for the State Pension
Taking a salary which is higher than the Lower Earnings Limit allows directors to build up qualifying years for their State Pension. The threshold for this is £6,396 in 2024/25, but this will rise to £6,500 from April 2025.
If your salary is above the Lower Earnings Limit but below the Primary Threshold (£12,570 for the 2024/25 and 2025/26 tax years) then you’ll accrue all the benefits of National Insurance, without actually paying it. This will affect how much State Pension you are entitled to once you pass state retirement age.
Can I use the tax-free Personal Allowance on my director’s salary?
Yes, you can. The Personal Allowance is the amount you are allowed to earn before you have to start paying income tax. In 2024/25 and 2025/26 the allowance is £12,570, so you only pay tax on the part of your income which is above that threshold amount.
For example
If you earn £14,000 in a year, you’ll only pay income tax on £1,430 of it.
£14,000 (salary) – £12,570 (tax free Personal Allowance) = £1,430. The amount subject to income tax is £1,430.
This year the Primary Threshold (when you start paying National Insurance as an employee) is the same amount at the tax free personal allowance.
So, if you take a salary from your limited company which is below the Primary Threshold, you won’t pay tax or NI on it as an employee.
Paying tax on dividends
It’s worth noting that although they’re not subject to National Insurance, dividends are subject to tax, but at a different rate to normal income tax.
The good news is there is also a separate dividend tax allowance you can use on top of the Personal Allowance. You can use our free online dividend tax calculator to work out how much you’ll need to pay. For 2024/25 and 2025/26 the Dividend Allowance is £500.
Read our article to learn more about Paying Tax on Dividends.
Are salaries an allowable expense for Corporation Tax?
A limited company pays Corporation Tax on the profit it makes throughout the year. Claiming tax relief on allowable expenses reduces the amount of profit, therefore reducing the amount of Corporation Tax which the company pays.
Salaries are an allowable expense, so if you’re a company director then paying yourself a salary from the business can help you lower your Corporation Tax bill.
How does the National Insurance Employment Allowance affect director’s pay?
Thanks to the Employment Allowance, the optimum salary for a company director also depends on how many other people there are in the business.
In 2024/25 eligible employers can use the Employment Allowance to claim up to £5,000 in order to cover the costs of employer’s National Insurance. In 2025/26 the allowance increases to £10,500.
To be eligible, employers must have at least 1 employee or 2 directors on the payroll, and the directors must not have another company claiming the Employment Allowance already. This means sole directors can’t claim the allowance, which is why the optimum salary is a bit different for them.
Director’s salaries – How much should I pay myself from my limited company?
Considering all the taxes and allowances together, the most tax-efficient salary for a limited company director depends on whether you’re a sole director or there are more people in the business. It also really depends on your own circumstances!
With so many variables in 2025/26 it’s more important than ever to speak to your accountant about your needs, but we’ll do our best to outline the different options.
A summary table for director’s salaries in 2025/26
We know it’s a lot of information to look at, so our table below summarises the effect of taking a salary at different levels for directors. We go into more detail in the sections below.
| Sole Director Secondary Threshold |
Sole Director Lower Earnings Limit |
Sole Director Primary Threshold |
2+ Directors Primary Threshold |
|
| Annual salary amount | £5,000 | £6,500 | £12,570 | £12,570 |
| Can claim Employment Allowance | ||||
| Will need to pay employer NI | ||||
| Will need to pay NI as an employee | ||||
| Will need to pay income tax | ||||
| Will earn NI credits | ||||
| Total NI to pay | £0.00 | £225.00 | £1,135.50 | £0.00 |
| Corporation Tax Relief Based on CT rate of 19% |
£950.00 | £1,277.75 | £2,604.05 | £4,776.60 |
| Net tax savings | £950.00 | £1,052.75 | £1,468.55 | £4,776.60 |
What is the best company salary for a sole director in 2025/26?
Working out the most efficient salary for sole directors is complicated by the fact that you can’t claim the Employment Allowance if you’re the only person in the business.
It’s why some company directors might find it beneficial to add another director, such as a spouse or family member, so that they’re eligible for the allowance because:
- Although the Secondary Threshold (the point at which you start making NI contributions as an employer) reduces from £9,100 to £5,000 in 2025/26
- The Employment Allowance will increase from £5,000 to £10,500
The optimum salary that you take depends on your circumstances, but as a very broad guide we’ll go over three different options, each with their own considerations. Other options are available!
In all of our examples below:
- The salary is at or below the Primary Threshold for paying employee National Insurance contributions
- It’s at or below the Personal Tax Allowance so you won’t incur income tax, and can put the unused part of your income tax allowance against any dividends
- The company can claim tax relief against your salary, which will help to reduce its Corporation Tax bill
- It is less than £1,500 of employer’s NI per month, so your company could choose to pay its contributions to HMRC on a quarterly basis, even if you receive a monthly salary
Take a salary of £5,000 (£416.66 per month)
Taking a slightly lower salary as a sole director can mean there’s more money left for dividends at the end of the year.
- It’s below the Lower Earnings Limit, so you won’t earn NI credits towards your state pension
- As a sole director you can’t claim the Employment Allowance, but this salary is at the Secondary Threshold, so your company won’t need to pay employer’s NI on it anyway
Take a salary of £6,500 (£541.66 per month)
- It’s at the Lower Earnings Limit, so you will earn NI credits towards your state pension
- This salary is a bit higher than the Secondary Threshold, so there will be some employer’s NI to pay because your company won’t be eligible for the Employment Allowance. It works out at £225 for the year.
- The company can claim tax relief against your salary, which will help to reduce its Corporation Tax bill. Assuming the company pays tax at a rate of 19%, this works out to be more than the NI it would contribute as an employer.
Taking a salary of £12,570 (£1,047.50 per month)
A sole director taking a salary at this level will incur employer’s National Insurance on their wages, but this is offset against the tax relief they can claim against Corporation Tax.
- It’s above the Lower Earnings Limit, so you will earn NI credits towards your state pension
- As a sole director you won’t be able to claim the £10,500 Employment Allowance. Taking a salary above the Secondary Threshold like this means you’ll need to pay Employer NI contributions. It works out at £1,135.50 for the year.
- Although the company will incur employer’s NI, it will also be able to claim tax relief for your salary, which will reduce your Corporation Tax bill. This reduction is more than the employer’s NI that your company will need to pay on this salary, so will effectively cancel it out.
- Taking a higher salary might affect your company’s cash flow throughout the year (and will leave a bit less in the pot for dividends)
- It might also mean that your accountant or payroll provider charges you a slightly higher fee
What is the most tax efficient salary for two or more directors in 2025/26?
Having at least one employee, or 2 or more directors, on the company payroll means you’re eligible to claim the Employment Allowance, so you can take a higher salary and still be tax efficient.
The most efficient salary for 2 or more directors in 2025/26 is
£12,570
Two directors can take an annual salary up to the Primary Threshold (£12,570) without making NI contributions as employees. Because the business is eligible for the £5,000 Employment Allowance (which rises to £10,500 in 2025/26), this will also cancel out the portion of employer’s National Insurance they would otherwise incur.
What salary should a director take in 2024/25?
Just like in 2025/26, the optimum salary for a company with two or more directors in 2024/25 is £12,570 because the business is eligible for the Employment Allowance. It’s a bit different if you’re a sole director so you have a few options to consider.
You might pay yourself a director’s salary of £12,570, or you could go with the lower amount of £9,100. In both cases your earnings will be above the Lower Earnings Limit for 2024/25 so you’ll earn NI credits.
Again, as a sole director you won’t qualify for the Employment Allowance. Taking a salary of £9,100 is at the 2024/25 Secondary Threshold, so your company won’t need to pay employer’s NI on it anyway.
Taking the higher amount of £12,570 might have implications for your cash flow during the year, and because it’s above the threshold for employer’s NI your company will have to make contributions (which works out at about £478.86 for the year). The company can still claim tax relief against this though, which will reduce your Corporation Tax bill. This reduction is more than the employer’s NI that your company will need to pay on this salary, so will effectively cancel it out.
What if I have another source of income?
The optimum amount for director’s payroll takes advantage of the Personal Allowance (£12,570). If you are already using it up because you have other income from elsewhere, then director’s payroll becomes PAYE payroll, and subject to tax and NI as normal.
What happens if I start a company but don’t take a director’s salary straight away?
If you register a limited company but wait a few months before taking a wage, you can backdate your optimum salary to the incorporation date and remain tax efficient as long as you’re still in the same financial year.
If a director joins the business later on, the National Insurance threshold is pro-rated from the date the director is appointed, regardless of when the salaries actually start being paid.
This means you can pro-rate the salary based on when the director started, rather than when payroll was set up, or when the company was incorporated.
Find out more about our online accounting services for directors and limited companies. Call 020 3355 4047, or get an instant online quote.
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Can director take pay annually? This to avoid going on the payroll monthly.
Hi Muhammad
Thanks for your message! Directors do have more flexibility with when they can take their salary through the year, but we would still need to make monthly submissions (which means that as a client, the fee would still remain the same).
I hope that helps, but just let one of us know if you have any questions, or give the team a call on 020 3355 4047.
Best wishes
Elizabeth
Many thanks for coming back. I tried to contact on the phone number given but they were not able to connect on it. Whats your direct line number?
What I am trying to understand that being a director can I take money as one lump sump(equivalent to Personal Allowance), as I am not registered as PAYE. Do I must be registered for PAYE?
Hi Muhammad,
Sorry to hear you were not able to connect – would it be ok if I ask one of the team to contact you using your email address?
Best wishes
Elizabeth
If I am the sole director of a company and pay myself and another employee through PAYE, can the company then claim the employment allowance?
Hi Ali
Thanks for you message! Yes, because there’s at least one other employee in your company, then the company can claim the employment allowance. I hope this helps, but do let us know if there’s anything we can do to help. Have a great day.
Best wishes
Elizabeth
What if there is another source of income that falls already within the higher taxpayer rate?
Hi Mike
Thanks for your message! If you have income elsewhere that goes above the tax threshold of £12,570 then this does change things.
The director’s payroll amount takes advantage of the Personal Allowance (that £12,570 amount), but if you are already using it up then director’s payroll becomes PAYE payroll, and subject to tax and NI as normal.
I hope this is useful, but let us know if you need any help!
Best wishes
Elizabeth
If a director receives £9k salary from their company and also works elsewhere as an employee. Can they inform HMRC that the company earnings should be accounted for first before all other earnings? Does this effectively mean all the employer contributions (tax, NI) are paid by the external employer rather than the directors own company?
Hi there,
HMRC will normally assign the tax free allowance to the job you had first as a default, but you can call them on 0300 200 3300 and ask for the allowance to go against your other job, or split it between the two. If you’d like to chat about it in more detail, call the team on 020 3355 4047 or use the live chat button, we’ll do all we can to help!
Best wishes
Elizabeth
Hey Elizabeth. I am currently the sole director of my company but retiring Dec 31st 2022, and planning to gift 70 % (majority shares) to my daughter. I have 2 questions. 1) if the company has £100 , 000 profit, is it correct that the company would then pay me £30,000 per year ( salary and dividend) leaving my daughter being paid £70K ( made up of salary and dividend) In order to protect my interest what type of shares should we both have. should my daughter decide to see the sell the business ( which dependant on price, I… Read more »
Hi Trish Thanks for your message. OK, so it’s a bit of a complicated answer! 1. Dividends are taken from company profits, and profits are accounted for after salaries (including director’s payroll) are taken out. But in essence, yes, if you and your daughter both own the same type of shares and you own 30% of them, you’re entitled to 30% of the dividends – though the dividend amount isn’t necessarily all of the profit. It’s also worth noting that you’ll only receive a salary if you stay on as a director. If you’re a shareholder only, you’ll only receive… Read more »
if you have another employee isnt it better to go up to 12570 instead of 9880 due to the saving corp tax at 19% over the 13.25% ers NI?
Hi Jodie
Thanks for your message! We generally advise £9,880 as the director’s salary because this is (currently) the Primary Threshold – the point at which employees start paying National Insurance. If the director takes a salary below that point, they won’t pay tax or National Insurance on it. I hope this helps, but if you’d like to chat with one of the team, just call 020 3355 4047, or start a live chat using the button on screen.
Very best wishes
Elizabeth
Hi there,
This year I have been taking a full £30k salary as a director. Can you change this mid year to the £9.1k, obviously only two months left of tax year? What implications would this have? Would the tax get reimbursed?
Thanks
Hi Eva
You can change your salary, but if you’ve already reported your director’s payroll through the year and the tax amount is correct for the amount of income, then you won’t receive a refund. I hope this helps, but if you’d like to go through anything in more detail, call the team for a chat on 020 3355 4047, or use the live chat button screen and we’ll do all we can to help.
Best wishes
Elizabeth
Hi there,
This is really helpful post. If I am the sole director but have two employees should I be on primary or secondary threshold? Does it depend on total employer NI payment in the year?
Thank you
Hi Ann
Thanks for your message! You’re right, it would depend. If the Employment Allowance (£5,000 for 2022/23) is used up on the Employer NI for the two employees, the director would stay on the Secondary Threshold. If not, they could go on the Primary Threshold, and have the Employment Allowance offset against their Employer NI.
I hope this is useful, but do let us know if there’s anything at all we can do to help!
Best wishes
Elizabeth
With the latest NI changes announced earlier this week what would be the most efficient salary for 2022/2023 for a company with 2 or more Company Directors. Also when should this salary come into effect – would it be from April or should it be delayed to July when the revised rates come into force. Kind regards Nicole
Hi Nicole
Thanks very much for your message! We’ve now updated the article with the information that is available so far, and we’ll let you know as soon as more details are available. In the meantime, please do contact us if you have any questions, we’ll do all we can to help.
Best wishes
Elizabeth
Thanks very much Elizabeth, your update has been a great help. Kind regards Nicole
I’m about to start a limited company with two directors paying each £11,908 annually. Then dividend payments quarterly. However, one director is in receipt of a pension. How does this effect things?
Hi Jason
Thanks for your message! It’s likely that the pension will be using up some of the tax free allowance, so we would take that into account when calculating the most tax efficient salary to take through the limited company. If you wanted to chat about it with the team in more detail, just give us a call on 020 3355 4047, we’ll do all we can to help.
Best wishes
Elizabeth
Re the director’s “other income source” …if it is a pension am I right in thinking that it won’t affect the NI payment threshold re a salary from their business? (I am below state pension age)
Hi Joe
Thanks for sending your message. You’re right, you won’t pay National Insurance on your pension, but it might impact the amount you can take tax-free if you are receiving a pension which counts towards your personal allowance.
I hope this is useful, but if you have any questions just let us know, we’ll do all we can to help!
Best wishes
Elizabeth
Is the best salary for a company with one director and one other staff member (typically the spouse) also £11,908?
Hello there
Thank you for your message! Yes, you’re right, a company with two or more employees (such as two directors, or a director and another employee) is eligible to claim the Employment Allowance, so the optimum salary in that case would be £11,908. I hope this helps, but please do let us know if there’s anything you need, and we’ll do all we can to help.
Best wishes
Elizabeth
Hello, I am a sole director of my company (no other staff). I also have a rental portfolio that generates an income. Please can you confirm if the £9,100 annual salary would be the tax efficient rate? What would be the rate if not, or does it not matter whatsoever? For my annual self assessment tax return, will i end up paying all the shortfall in national insurance because it wasn’t taken out of my salary? Would i be paying national insurance regardless on the property income in any event, within my self assessment? Or is this only now being… Read more »
Hi Ian
Thanks for getting in touch. It’s usually tax efficient to still have the salary (at £9,100) so you can claim the Corporation Tax relief. You don’t pay NI on property income, so to get the qualifying years for your pension you would need to either take the salary at £9,100, or make voluntary NI contributions to HMRC.
I hope this is useful as a starting point, but please do call the team on 020 3355 4047 if you want to chat through anything in more detail.
Best wishes
Elizabeth
For a sole director, isn’t it better to pay £11,908 instead of £9,100 as there is £110 better position from Corporation Tax saving to paying Employers NI?
Hi Ben
Yes, the calculations do work out to be rather similar, so whilst we advise clients to go for the lower salary, it’s always entirely your decision which option works best for you.
If there’s anything we can do, call the team on 020 3355 4047 to chat about it in more detail, we’ll do all we can to help!
Best wishes
Elizabeth
Hi,
Where there are two directors of a ltd company based in Scotland, both employed elsewhere, one paying higher rates tax but taking no salary from the ltd company, the other a lower rate tax payer and taking around £8k salary from the ltd company, what changes need to be made for 2022/3 to be most tax efficient?
Great article. Thank you.
We are a two director led company so it looks like paying ourselves each £11,908 over the year is the right thing to do but does that mean a lower salary for the early part of the tax year and then I increase it in July when the NI changes happen?
Hi Neil Thanks for your lovely feedback! This depends which method you use to calculate NI for directors. – if you use the standard (cumulative) method, you can pay the same amount each month across the year. – if you use the alternative (non-cumulative) method, you’ll pay the lower amount for the first 13 weeks of the tax year, and then the higher amount for 39 weeks (the rest of the year). Hopefully this helps but please do chat about it with the team in more detail if you’d like to! We’re on 020 3355 4047, and there’s a live… Read more »
Hi,
Will I be eligible for the employment allowance if I’m a sole director but have employees? The above information only mentions 2 directors on payroll.
Thanks,
Maggie
Hi Maggie,
Thanks for getting in touch! Yes, as long as the business has 2 or more employees on the payroll then it’s eligible for the Employment Allowance. So this might be two directors, one director and an employee, or a sole director with multiple employees.
I hope this answers your question, but if you wanted to phone (020 3355 4047) or live chat the team to talk about it in more detail, we’ll do all we can to help!
Best wishes
Elizabeth
Hi. Really great post. I have two separate Limited businesses where I am a Director (completely separate one is retail the other construction). I am on the payroll for both. I claim the NIC allowance for the retail co as I have 4 other employees – but do not pay myself enough in this company to participate in the benefit (ie my pay is below the Employer NI threshold) In the construction company myself and my wife are directors and we claim the NIC allowance – and we pay ourselves over the Employer NI threshold. Is that ok ? –… Read more »
Hi Brian
Thanks for your message, and your lovely feedback. HMRC considers two companies to be connected if both companies are under the control of the same person or persons. When this is the case, only one company in the group can claim the Employment Allowance. This is regardless of how much the directors are earning on each payroll.
I hope this answers your question, but if you wanted to talk it over with the team in more detail, call 020 3355 4047 or use the live chat.
Have a great day, best wishes
Elizabeth
This was a very useful article. Thank you.
For a company paying two directors and paying £11908 for the year is it best to pay a monthly amount of £823 until July and then £1047.50 thereafter or divide the yearly amount by 12 and pay £992.33 ever month or does it not make any difference due to directors averaging?
Many thanks
Hello That’s lovely feedback, thank you. To answer your question, it depends which method you use to calculate NI for directors. – if you use the standard (cumulative) method, you can pay the same amount each month across the year. – if you use the alternative (non-cumulative) method, you’ll pay the lower amount for the first 13 weeks of the tax year, and then the higher amount for 39 weeks (the rest of the year). Hopefully this helps but please do chat about it with the team in more detail if you’d like to! We’re on 020 3355 4047, and… Read more »
Many thanks, I appreciate your quick response.
I’m due to leave the military and will receive an EDP payment each month. This will currently be below the LEL national insurance limit. So in this instance would I pay myself even less of a salary to top it up to to receive all the benefits of the national insurance and top it up with dividend payments?
Hi Damon
Thanks for your message! If your EDP is taxable then yes, you’re correct. If it’s not taxable then you won’t have to take it into account for the salary at all. I hope this answers your question, but just let us know if you need any help, or give the team a call for a chat.
Best wishes
Elizabeth
What new responsibilities do I have once I sign up for directors payroll? I think you are then classed as an employer even if you are the only person in the business.
Hi Ross Yes, you’re absolutely right, the company would then be classed as an employer and as such would be obliged to submit RTI to HMRC (Real Time Information, it’s the return that employers send to tell HMRC about employee pay and tax deductions) and pay any PAYE due etc. However, as it is a director only payroll, there are some exemptions from the usual obligations. For instance the obligation for Auto Enrolment and to pay National Minimum Wage would be examples. I hope this is useful, but just let us know if there’s anything we can do, and we’ll… Read more »
i have just recently set up a Limited Company, I will be showing my self as having a Salary of £9100, how can i take my dividends out, can this be on a monthly basis?
Hi Lesley
Thanks very much for getting in touch! There are no real rules about how often you can pay dividends as long as the company can afford it, although it’s generally better to pay them out at regular intervals.
This article about paying dividends might help, but please do let us know if there’s anything at all we can do!
Best wishes
Elizabeth
Hi. I am the sole director of my company but I work elsewhere also. Would I be able to pay myself a very minimal amount of say £50 a week so I don’t pay NI or income tax on the amount but also be able to claim the total amount over the year against my Corporation Tax? Many thanks in advance.
Hi Matt Thanks for your message! The short answer is yes! Company directors can take a salary below the NI threshold (the point at which you start paying NI), and the company can claim this as an allowable expense against its Corporation Tax bill. The optimum salary depends on whether you receive any other income, and whether there are other directors in the business. In the 2022/23 tax year the optimum salary for a sole director in is £9,100, or £11,908 for 2 or more directors. I hope this answers your question, but just let us know if need any… Read more »
Hello Elizabeth,
Please can you help.
I am already full time employed with higher tax bracket.
I want to do some extra work as limited company.
My wife is a homemaker and no source of income so want us both to be Directors but because paying myself will have major tax implications, want to pay her and not me.
Is that allowed, as I will be the one working.
Can I get some help with a discussion and actual figures to see if it’s beneficial at all?
Please email me or call me.
Regards
Arindom
Hello Arindom
Thanks so much for sending a message. If you like, pop your contact details over to us, or request a call back using this form and we’ll all we can to help.
Best wishes
Elizabeth
Hi I set up my limited company mid year and prior to that was a sole trader. I earned about 18k to this point of the year before I switched. Should I just pay myself your recommended directors’ salary pro rata for the rest of the year or is there a more efficient thing to do for this situation?
Thanks
Hi Steven
To determine the most efficient route for your personally it would be best to undertake a full tax-efficiency review, but yes you can pay the recommended salary from the date of incorporation. This will allow you Corporation Tax relief on the salary, but for your personal tax return it would also mean you would be subject to taxes on the salary and sole trader income combined, which might be something to consider.
If you need any help just let the team know on 020 3355 4047 and we’ll do everything we can.
Best wishes
Elizabeth
Hi I formed a Ltd company back in Feb 2022 but to date have not paid myself a salary or any dividends. What is the most tax efficient amount to pay as a salary so I am not paying double paying tax/ NI. I do have some additional dividend income and rental income of about £11k a year. I am unsure as to what the best amount is and whether I can back date the salary amount?
Thank you
Sam
Hello there Thanks very much for your message. You can backdate salaries, to the incorporation date. We would usually advise to take a salary at the NI threshold, as your property income and dividends do not count towards the pension credit years, this will allow you to receive your NI credit. However, everyone has different circumstances and company profits, so without knowing your specific details it might be best to speak to an accountant to determine the most tax efficient level for you and your company overall. Let us know if there’s anything at all we can do to help.… Read more »
I just registered my LTD company and I am very new to all of the PAYE, tax and other accountancy bits. As a sole director with no other employees do I still have to register on PAYE to pay myself a salary and NI ? Thank you
Hi Virginia
Thanks very much for your message. Yes, if you take a salary above the Lower Earnings Limit (which is currently £6,396 per year) then you’ll need to register for PAYE and report your earnings through a PAYE scheme. I hope this helps as a starting point, but do let us know if there’s anything at all we can do!
Best wishes
Elizabeth
Hi Elizabeth, if you have a limited company with only 2 directors (no other employees) on the Payroll and the Payroll was started in Month 7, would you pay them a monthly salary of £992 (£11908/12) or £1985 (11908/6) please? They have no other income except dividends from the company at year end. Thank you in advance.
Hi Nicola
Thanks for getting in touch! So the National Insurance threshold is pro-rated from the date that the director is appointed, regardless of when the salaries actually start being paid. This means you can pro-rate the salary based on when the director started, rather than when payroll was set up, or when the company was incorporated. I hope this helps, but please do let us know if there’s anything we can do for you!
Best wishes
Elizabeth
Thank you so much.
Hi Elizabeth, A really useful piece. My situation is that I have a limited company with myself as director and one employee earning £400 / month. I’ve always understood that I cannot claim employers NI allowance as my other employee is below the LEL. Is this correct? Up until now I’ve always paid myself the low wage / dividend route up to the start of higher rate tax but as I’ve now reached the state retirement age but am continuing to work. Will it be better for me to now pay myself more and let my company pay the employers… Read more »
Hi Nick
No need to apologise! I’ve replied to your queries using your other comment, but please do let me know if you need anything. Have a lovely day!
Best wishes
Elizabeth
Hi Elizabeth, A really useful piece. I am director of a limited company with one other employee. I always believed that as my employee was paid £400 / month (below the SEL) that I couldn’t claim the employers NI allowance? Up until now I’ve paid myself the “one director” wage, plus then topped up my earnings to just under the higher rate tax limit with dividends. I’ve now reached the state retirement age and as a result I don’t pay NI contributions so I’ve got two questions: 1) If I increase my employee to the SEL, say another £360/ month,… Read more »
Hi Nick Thanks very much for your messages (and your lovely feedback!). So, if your employee is paid above the Secondary Threshold (which is £758 per month this year) then the company may be able to claim the Employment Allowance. In which case, it may be more tax efficient to take a salary up to the tax threshold (£12,570), as the NI will be covered by the allowance. This is just based on your message though, so it might be best to check in with your accountant who will tailor the advice to your personal circumstances, but please do let… Read more »
Hi this is a great article. I’m a solo director of my ltd company. If I’m planning on having a baby and wanting to claim maternity allowance, what salary would be better for me to ensure I’ve made the minimum contributions to claim? Many thanks
Hi Helen Thanks for your feedback, that’s lovely. As a director you’re actually entitled to Statutory Maternity Pay (SMP) just like any other employee. You’re entitled to this if you have been continuously paid a salary on the payroll for at least 26 weeks up to any day in the ‘qualifying week’ (the 15th week before the baby is due) and earn at least £123 a week (gross) in an 8-week ‘relevant period’. (If you decided to take a tax-efficient salary of £9,100, this would qualify). Your company, as your employer, would pay you SMP through payroll, and then claim… Read more »
Hi Elizabeth, thank you again for such a helpful article. Can I ask please how it is best to pay a Director monthly who is on a Tax Code of W1/M1 and only started Payroll half way through the year. If I pro-rate the salary, will he incur income tax to pay? Thank you.
This is such a helpful post – the best I have come across. I work in marketing and help people start businesses so I know a lot already, but this is the bit that always stumps me. Thanks so much for making this so clear and with figures we can use.
Thanks so much for your lovely feedback, I’m glad you found it useful!
Have a great day
Best wishes
Elizabeth
This is a really great article, thank you! I am a sole director and have been paying myself exactly £758/month (rather than £758.33 per month – I hope this doesn’t have any negative impact?). No other earnings. I have an employee who I have been paying £600 per month. Will I automatically get NI credits as a director or do I need to fill in any forms and submit to HMRC? I am trying to ensure I have no gaps in my NI record for the full state pension. Thank you
Hi Ramila Thanks for your message, and your kind words! Paying yourself a salary of £758 means that your pay is still above the Lower Earnings Limit, so even though you won’t pay NI, you’ll earn NI credits. You won’t need to apply for these, they’ll just be added to your record automatically – but it’s always a good idea to keep an eye on things, which you can do by accessing your Personal Tax Account online. Your employee is also earning more than the Lower Earnings Limit, so they will also earn NI credits. I hope this helps, but… Read more »
Thank you so much for your reply, much appreciated!
Hi Elizabeth, my wife and I own an SPV. There is no employee in this company, if I decide to take £758.33 monthly and my wife takes nil through the director payroll rather than the PAYE payroll, how can the HMRC know that I take this £758.33 per month as my salary, and credit my NI? Thanks!
Hello
Thanks for your message! So, although you’re paid through ‘director’s payroll’, you’ll still need to report this via PAYE. HMRC will use this information to calculate your NI contributions (or to credit your deemed NI contributions). I hope this helps, but if you need more information, give the team a call on 020 3355 4047 and we’ll do all we can.
Best wishes
Elizabeth
My company is likely to make between 500to700k profit in the 24/25 year if the profit is going to be taxed at 25% on that figure is it not more tax efficient for the 3 directors to take the max wage below the 40% personal threshold to reduce the company’s corp liability and reduce the overall tax position for the company if you view personal and corporate tax as the same thing. Which they are as both come out of my ability to grow my company.
Hi Matthew So, on the basis that this is your only source of income, it still might be more tax efficient for you all as individuals if you pay yourself a lower salary, and then take dividends. This is because taking a higher salary will be subject to Employer NI contributions, and you’ll each be subject to Employee NI and Income Tax deductions too. As far as the company is concerned, if you were each to take a salary up to the higher rate tax threshold, then yes, you can offset this against your Corporation Tax bill. But, the amount… Read more »
Hey, if I am employed by another company full time at 31k a year. Then I start my own ltd company, for the first year can I not pay myself anything from my new company and keep the money in the business. So I avoid paying the 40% tax charge. Then from my second year in my new company when I plan to go full time, then take a salary.
Hi Ryan
Yes, that’s absolutely possible, and it can actually be a tax-efficient way to spread out your income. For instance, rather than taking a £60k dividend one year (which would put you into the higher rate tax category) and none the next, you could take £30k of dividends each year, and this would be under the higher rate tax threshold.
I hope this makes sense, but please do let us know if there’s anything at all we can do for you.
Best wishes
Elizabeth
Hi Elizabeth, your article is really helpful. I am new to this and I have set up a LTD last month and it is only myself who is the director although I will be working together with my husband who is self employed. How will I have to pay him through the company? Through PAYE just like I do for myself? Thanks in advance!
Hi Bianca Thanks for your lovely feedback, I’m glad it’s been useful for you – and more importantly, congratulations on your new company! OK, so this is up to you, really. You could add your husband to the company payroll as an employee, and pay him that way (or add him to the company as a director, which would mean that the minimum wage requirement wouldn’t apply, but you could pay him a director’s salary). If your husband is already registered as self-employed and will be doing ad-hoc work for you here and there, rather than working for the company… Read more »
Does the £12,570 allowance change if there is a benefit in kind? For example if benefit kind is is £97.89 per month, should the annual salary be redured to £11,395? Thank you
Hi David
Thanks for your message. Yes, you can take a combined approach so that the benefit in kind and the salary amounts to the allowance.
I hope that this helps, but please do let us know if there’s anything at all we can do!
Best wishes
Elizabeth
This is all so confusing 😩
If there are two directors in the business, husband and wife (she has a little income from elsewhere), I understand he will be fine on 12,570 as this is his only income. But can she also be on 12,570 on the business payroll or should it be less because of her other income? They will be claiming EA
Hi Karina We’ll do our best to help! Without knowing all the details we can only give a very general overview. So this depends on the wife’s other income. She can still take the full £12,570 and bear no NI. If her other earnings are low and they don’t want her to pay income tax then yes, you can restrict the salary. Likewise if she is near the higher rate threshold then it makes sense to restrict – but it is not essential, and if you view things over the individual and company it is usually efficient to take the… Read more »
I have a limited company, where I am the single Director and only employee, holding 100% of the shares. There are no no other employees or associate parties. The company is a closed company. I am the only shareholders and participant and driver of the company and its revenues. If the company makes contribution to the Director SIPP account only; and the SIPP pension account is fully in the name of the Director, will those contributions be an allowable expense with full corporate tax relief. if yes, will it be subject to the 60K Annual limit (if pre-tax corporate profits… Read more »
Hi Vasileios
Thank you for your message! Yes, your limited company can claim tax relief on pension contributions that it makes, as long as there are profits available for the company to make a contribution (i.e. doing so can’t create a loss).
Pension planning can be very complicated, so we normally advise clients to speak to a financial regulator who is regulated by the IFA to make sure they’re getting the best support possible.
In the meantime, do let us know if there’s anything we can do!
Best wishes
Elizabeth
Hi – this is really informative postso thank you for sharing your knowledge! I run a business that is made up of just two directors. We both currently draw a total income of £3650 per month each and we’d like to this to increase to £4000 p/m each in 2024. Currently this is made up of PAYE and dividends (at the moment the PAYE element is £793 each P/M and the rest is taken as dividend which is £2857 P/M each). Your article seems to suggest increasing the PAYE element to £1047.50 each P/M and then toping that up with a dividend… Read more »
Hi David Thank you very much for your kind words! Yes, with two of you in the business you would be able to claim the £5,000 Employment Allowance, which would go towards the employer’s National Insurance you would otherwise incur. It’s quite difficult to say what the optimum number would be for sure without knowing your specific circumstances (for instance, if you have another source of income). Assuming that you have no other source of income then taking a salary of £1,057.50 per month (£12,570 per year) might be the most tax efficient option, but it’s definitely worth having a… Read more »
Hi, this is a great article. I’m looking at starting a ltd business as a side hustle. It probably won’t generate enough to be my main business. As the sole director, would I be able to not pay myself but pay any earnings into a pension? Either monthly or quarterly?
Hi Dave
Thanks very much for your kind words – glad it’s helpful. Yes, as a director you can pay money straight into your pension rather than taking wages (and your company can also make contributions as your employer). This article about self-employed pensions goes into the process in a bit more detail (and also explains the amount you can pay in before starting to think about tax), but please do let us know if you need anything.
Have a smashing year, and all the best with your new venture!
Elizabeth
I have a limited company and the Accountancy Partnership manages my accounts. For the next financial year I need to decide what salary the two company directors (my wife and I) should take. My wife has no other source of income so i believe it will be best for her to take a salary just below the tax threshold of £12,500 approx. For me it is more complicated as I receive an income from a defined benefit pension (the income from my pension was £33,922 for this financial year but could increase by 5% for next financial year to £35.618… Read more »
Hi Mark
Thanks very much for getting in touch, it’s good to hear from you! I noticed that you’re a current client, so I passed your query along to your accountant, Christopher, who will get back to you this afternoon.
Best wishes
Elizabeth