Even if you’re also the owner, you’re legally separate from your limited company as a director. This means that, unlike a solo trader, you are not allowed to retain all of the gains for yourself.

 Instead, you’ll have to figure out how much you’re going to pay yourself. The most tax-efficient strategy to earn money from your limited company is to combine a minimal wage (like any other employee) with dividend payments.

Why should I pay myself a director’s salary as well as dividends?

You are technically an employee of your own limited corporation as a director. Employers and workers both pay NICs on salary payments, but not on dividends, therefore it makes sense to pay yourself a lower income and make up the difference with dividend payments.

The advantage of taking a salary is that you will have consistent income throughout the year, which can be below minimum wage without breaching any restrictions because directors are considered “office holders.”

So, how much should you be paid from your own business? In order to be as tax effective as possible, paying yourself as a company director is a bit of a balancing act.

National Insurance, the number of personnel in the company, tax allowances for dividends and income, tax relief for employee wages, and even the benefits of making qualifying payments for the State Pension should all be considered when striking the correct balance.

Keep your seat warm while we go about director salaries and the best amount to pay yourself. We understand how perplexing it may be, so obtain a fast quote online if you require additional assistance!

National Insurance and director’s salaries

Because the NI levels for employers and employees fluctuate, the amount of pay you take has an influence. If you receive a salary from the company that is higher than the NI threshold (the point at which you must begin paying NI) for both employer and employee NI:

Employer’s National Insurance Contributions must be paid by your organisation as your employer.

As an employee, you are responsible for paying National Insurance on the wage you are paid by your employer.

It essentially means that you are paying National Insurance twice on the same amount of money, which isn’t very tax efficient!

If you need to look up the data for 2021/22, you can do so in our article on tax rates

Qualifying for the State Pension

Directors can build up qualifying years for their State Pension by taking a salary that is higher than the Lower Earnings Limit (£6,396 per year in 2022/23) by taking a salary that is higher than the Lower Earnings Limit (£6,396 per year in 2022/23) by taking a salary that is higher than the Lower Earnings Limit (£6,396 per

If your salary is above the LEL but below the Primary Threshold (£9,880), you will be eligible for all NI benefits without having to pay it. When you reach state retirement age, this will have an impact on how much State Pension you are entitled to.

Using the tax-free Personal Allowance on your director’s salary

The amount you can earn before you have to start paying income tax is known as your Personal Allowance.

The Personal Allowance will be £12,570 in 2022/23.

Only the portion of your income above the Personal Allowance threshold is taxed. For example, if you earn £14,000 in a year, you will only be taxed on £1,430.

£1,430 = £14,000 (salary) – £12,570 (tax-free Personal Allowance). The amount that is taxable is £1,430.

You won’t pay tax or NI on a wage from your limited company that is less than the Primary Threshold for National Insurance (£9,880).

Paying tax on dividends

It’s worth remembering that, while dividends aren’t subject to NI, they are taxed at a different rate than regular income. The good news is that, in addition to the Personal Allowance, you can take advantage of a separate dividend tax allowance.

The Dividend Allowance will be £2,000 in 2022/23.

Salaries are an allowable expense for Corporation Tax

Corporation Tax is levied on a limited company’s profits throughout the year. By claiming tax relief on permitted expenses, the company’s profit is reduced, and thus the amount of Corporation Tax it pays is reduced.

Salaries are a deductible business expense, therefore if you’re a company director, paying yourself a salary from the company can help you save money on corporation taxes.

How does the NI Employment Allowance affect director’s pay?

Because of the Employment Allowance, the ideal remuneration for a company director is also determined by the number of other employees in the organisation.

 Employers who are eligible can claim up to £4,000 in Employment Allowance to defray the costs of employer’s National Insurance.

 Employers must have at least one employee or two directors on the payroll to be eligible, and the directors must not be directors of another company that is already claiming the Employment Allowance. Because sole directors are not eligible for the allowance, their optimum remuneration is slightly different.

2022/23 Director’s salaries – How much should I pay myself from my limited company?

When all taxes and allowances are taken into account, the most tax-efficient compensation for a limited company director is determined by whether they are a solo director or if the company employs more than one person.

In 2022/23, a solitary director’s ideal pay is £9,100. If there are two or more directors, the best salary is £9,880.

What is the best company salary for sole directors in 2022/23?

The most efficient salary for sole directors in 2022/23 is  £758 per month.

If you’re the sole directors and pay yourself a salary through your own limited company, the best amount to pay yourself is £9,100 per annum (or £758 a month). This is because:

• It’s at the secondary threshold so your company won’t need to pay employer’s NI on it.
• This salary is lower than the primary threshold, so you won’t need to pay employee’s NI.
• It’s above the Lower Earnings Limit, so you will still earn NI credits, which is great news for your state pension.
• This is less than the tax-free Personal Allowance threshold.
• A sole director cannot claim the Employment Allowance.

What is the most tax efficient salary for two or more directors in 2022/23?

Having 2 or more directors on the company payroll means that you’re eligible to claim the Employment Allowance.

The most efficient salary for 2 or more directors in 2022/23 is £823 per month.

The directors are able to take an annual salary at the primary threshold of £9,800 (or £823 per month) without incurring any NI.

What if I have another source of income?

The Personal Allowance (£12,570) is the best amount for director’s payroll, but if you’ve already used it up because you have other sources of income, director’s payroll becomes PAYE payroll, and you’ll be subject to tax and NI as usual.