How to Pay Yourself as a Ltd Company UK | BEST Directors Salary 2023/2024

The MOST TAX EFFICIENT SALARY to pay yourself as a Director of a Limited company in 2023/2024. This is the EXACT Director's salary that I will be PAYING MYSELF this year. For the majority of small businesses, a combination of a basic salary and dividends will be the most tax efficient way to yourself from a Limited company in 2023/2024. For the past 4 years, I have released videos explaining the BEST way to pay yourself from a Ltd company. In previous years, I have recommended that directors pay themself a basic salary up to the Secondary National Insurance threshold, however, that is no longer the case. The secondary NI threshold has recently been increased to match the personal allowance at £12,570. This means it is now more tax efficient to take a slightly larger base salary. Here are some of the key pieces of information from this video that you may find helpful: These are the Income Tax rates and thresholds for 2023/2024: • Personal allowance = £12,570 (0%) • Basic rate = £12,571 to £50,270 (20%) • Higher rate = £50,271 to £125,140 (40%) • Additional rate = £125,140+ (45%) Note: You lose £1 of your personal allowance for every £2 you earn over £100,000 These are the National Insurance rates and thresholds for 2023/2024: • Lower Earnings Limit (Benefits Threshold) - £123 per week / £533 per month / £6,396 per year • Primary Threshold (Employees) - £242 per week / £1,048 per month / £12,570 per year (aligns with personal allowance) • Employees Rate: 12% up to £50,270 and 2% over £50,270 • Secondary Threshold (Business) - £175 per week / £758 per month / £9,100 per year • Employers NI = 13.8% above the secondary threshold (no reduction over £50,270) National insurance is the main reason why directors pay themselves Dividends, it helps avoid the double taxation of combined employees and employers National Insurance which would be 25.8%! Corporation Tax • Payable against net profits made by a Ltd company • Allowable business expenses can be offset against profits to reduce your corporation tax liability • Your salary & employers NI are allowable business expenses Corporation tax rates for 2023/2024 • Less than £50,000 (Small Profits Rate) = 19% • £50,001 to £250,000 = Marginal Relief • £250,000+ = 25% Dividends Explained • Dividends are payable to shareholders from profits or retained profits from previous years • They are not subject to National Insurance or Income Tax, instead, they are taxed separately via a Dividend tax. • Dividends can be paid monthly, quarterly or at any time throughout the year (interim dividends) or after the annual accounts (final dividends) • Dividend tax is paid via self assessment • The tax free dividend allowance for 2023/2024 is = £1,000 Dividend tax rates for 2023/2024 • Basic rate = £13,571 to £50,270 (8.75%) • Higher rate = £50,271 to £125,140 (33.75%) • Additional rate = £125,140+ (39.35%) Optimal Director’s Salary 2023/2024 • Recommended Salary: £1047.50 Per Month / £12,570 Per Year (Above this use dividends) • Makes full use of the personal allowance (no income tax due) • Above the National Insurance LEL threshold to qualify for benefits e.g. state pension • Below National Insurance primary threshold (no employees NI due) • Above National Insurance secondary threshold so employers NI becomes due from £9,100 to £12,570(£3470 at 13.8% = £478) • However, this is tax deductible from corporation tax at a minimum of 19%: £3470+ £478 at 19% = £750 (Save £272) • Note 1: NI payments will need to be made to the HMRC monthly/quarterly, the best salary that doesn't require National Insurance payments is £9100 per year. • Note 2: A £5,000 Employment Allowance is available to Ltd companies with at least 2 directors/employees (inc. husband & wife directors) earning above the NI Secondary Threshold Dividends vs Salary For many small businesses, the most tax efficient way to pay yourself is with a small salary and then dividends on top. However, in some situations, it may be more tax efficient to pay a full PAYE salary instead. Always check with an accountant what the best directors salary would be for your Ltd business. How do you pay yourself as a director of a Ltd business in 2023/2024? Let us know your plans in the comments below!