Director Salary Reviews

Are you reviewing your directors salary per annum?

The level of pay through PAYE for a director should be reviewed every year to ensure that the Lower Earnings Limit is met and you get your full National Insurance contribution, and to ensure the level of salary is set to maximise tax planning efficiencies. 

So, what is the most tax efficient salary for directors that are being paid via salary through PAYE and dividends?

We believe that taking a salary of £12,570, or £1,047.50 a month, is the most efficient way.

If a sole director takes a salary at this level, they will incur National Insurance on their wages, but it is offset against the tax relief they can claim against Corporation Tax.

A sole director cannot claim the £,5000 Employment Allowance. By taking a salary above the Secondary Threshold, it means you’ll need to pay Employer National Insurance contributions which works out to be about £478.86 for the year.

As this is less than the £1,500 of employer’s National Insurance per month, your company could choose to pay its contributions to HMRC on a quarterly basis, even if the director receives a monthly salary.

Despite the fact the company will incur employer’s National Insurance, they will also be able to claim tax relief for the director’s salary, which will reduce their Corporation Tax bill.

This reduction is actually more than the employer’s National Insurance that your company will have to pay on this salary, so would effectively cancel it out.

This salary is at the Primary Threshold, so you would not need to pay National Insurance as an employee. It is also above the Lower Earnings Limit, so would still earn National Insurance credit for your pension, and is at the tax-free Personal Allowance threshold for income tax.

If you have any questions about director salaries, or the information we’ve detailed above, don’t hesitate to reach out to us.

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