10th July 2023
The most tax efficient Director’s salary 2023/24 is £12,570 per annum. The reason for this is all down to the National Insurance (NI) rates.
A Director can earn up to £12,570 per annum before needing to pay employees NI contributions.
Once a Director’s salary exceeds £9,100 per annum, the employer (your business) will need to pay employers NI contributions.
Although the additional salary of £3,470 (£12,570 – £9,100) will mean that the company will be liable for Employers NI, the salary and Employers NI will both be allowable deductions against the companies profits, which will save Corporation Tax.
The table below shows the overall Tax savings of drawing a salary of £12,570 per annum rather than £9,100, at the lowest and highest Corporation Tax rates:-
The extra employers NI totals £478 (calculation is £3,470 at 13.8% employers NI)
|Company profits up to £50,000
(Tax rate 19%)
|Additional salary £3,470
|Additional employers NI £478
|Corporation tax saving
|Less cost of additional employers NI
|Total overall Tax saving (per Director)
If the companies profits are above £50,000 the Tax saving would be greater. If you would like to know how much you can save the please let us know and we can calculate this on an individual basis.
Where a company has multiple directors or employees and the employers NI liability is less than £100,000 they will also qualify for the employment allowance which allows a company to reduce their employers NI liability by up to £5,000 per annum.
Should an employment allowance claim be available, then the employers NI of £478 would reduce down to £Nil. Therefore, increasing the Tax savings to £659 or £920 (depending on relevant rate of Corporation Tax). Please note, an eligibility check will need to be carried out first to determine whether the company qualifies for this allowance.
The majority of owner managed businesses should pay themselves a salary of £12,570.
There are numerous assumptions made when calculating the above figures. The amounts are not suitable for all Directors. In situations, where the Director has other income such as pension income, another salary, benefits in kind, rental income, it may be advisable to pay a different salary. To calculate your optimum Directors salary for 2023/24 you must look into your individual circumstances. Please contact us if you think this may apply to you and we can calculate the most Tax efficient salary for you.
Please contact Caroline Wilby with any queries or concerns on the above.
have you read our previous post?