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Optimum Directors Salary

As a Director of your own company it is vitally important to ensure you are paid in the most tax efficient manner. Generally being paid in order of: Salary, Dividends, return of directors Loans.

To tailor your salary mean constantly amending this in line with the tax rates and allowances. Look for:

  • What is the tax free personal allowance?
  • What is the basic rate threshold?
  • Is there a tax free dividend allowance remains?

You have to consider other factors too:

  • Do you have income from any other sources?
  • Your contracts are not caught by off-payroll (IR35) regulations
  • You are UK tax resident
  • There are no other issues such as student loans or child benefit high income tax charge

Taking a salary at the minimum level triggers a national insurance record for your state pension and the personal allowance level.

Your company can claim the cost of your salary as a corporation tax deduction, saving corporation tax at the prevailing rate.

National Insurance currently isn’t payable on any dividends paid to you by your company (at time of print) – is this still the case?

National Insurance

Lower Earnings Limit 

If you keep your salary above this limit, you’ll preserve your future entitlement to state pension and benefits. However you don’t actually need to pay any contributions.

Primary Threshold

Once your earnings start exceeding this threshold you are liable to employee’s national insurance.

Secondary Threshold 

When your earn above this threshold, your company is required to pay employer’s national insurance. 

Benefits In Kind

Benefits In Kind (Perks / Fringe Benefits) received by employees or directors from their employment, which are not included in their wages / salary. E.g. co. car, private medical ins, cheap or free loans. Remember you will pay tax on these benefits & the company will pay NI. So consider before taking a benefit, if it really is one!

As an employee, you pay tax on company benefits like cars, accommodation and loans. Your employer takes the tax you owe from your wages through Pay As You Earn (PAYE). The amount you pay depends on what kind of benefits you get and their value, which your employer works out.

https://www.gov.uk/tax-company-benefits

Disclaimer

The information contained herein is given by way of general guidance only and no action should be taken solely on the basis of the information contained herein. Whitley Morgan Ltd will be pleased to provide further guidance on the issues, and how they might affect you.  No liability is accepted by the firm for any action taken without seeking appropriate professional advice. Time of print March 2022.

Author

victoria sharp

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