Being a director of a limited company means having the ability to pay yourself in a different manner to being a typical PAYE employee.
In the context of a limited company, it is common for the director to receive a salary through the PAYE system and to also receive dividends from the profits of the company. This is often a tax-efficient way of receiving income, as dividends are taxed at a lower rate than income tax.
Directors may also be able to take advantage of certain employee expenses, such as travel and subsistence costs, which can be reimbursed by the company tax-free. Additionally, directors may be able to make use of directors’ loans, which can provide a tax-free or low-tax way of accessing funds from the company.
These options of course are dependent on the limited company being profitable or having the reserves to make the payments.
The optimum director’s salary in 2023/24 is £12,570 per annum. The reason for this is all down to the National Insurance (NI) rates. The lower earnings limit for NI in 2023/24 is £6,396 per annum.
If you earn over this amount it will count as a qualifying year for your future state pension. The optimum director’s salary 2023/24 is £12,570 per annum, which equates to £1,047 per month or £241 per week.
This is the most tax efficient amount for the majority of directors to pay themselves. Owner managed businesses can typically decide how to pay themselves. This can be either a salary, dividends, or a mixture of them both. Directors, who have no other income should look to pay themselves the optimum director’s salary of £12,570. Any additional income should be paid as dividends.
The optimal in 2023/24 is to pay £12,570. This ensures the taxpayer qualifies for the state pension but does not need to pay any employee contributions. You can qualify for a state pension without making any personal NI contributions.
If you need advice on your company’s finances, contact us today.