11 Apr Directors Salary 2023
Directors Salary 2023
If you operate your business through your own UK limited company you’ll most likely want to use the optimum tax planning strategy of extracting money from your company through a combination of shareholder dividends and a low salary.
The personal allowance (the amount of income that you can earn before you pay tax) in 2023/2024 remains the same as 2022/2023 at £12,570.
Income Tax Thresholds
Income between £12,570 and £37,700 (Basic tax rate) – 20%
Income between £37,701 and £125,140 (Higher tax rate) – 40%
Income over £125,140 (Additional tax rate) – 45%
The Dividend Allowance is reduced to £1,000 from £2,000 for the 2023-2024 tax year. This is the amount of dividends you can receive from your limited company free of tax.
Dividend Tax Rates
Dividends within basic tax rate – 8.75%
Dividends within the higher tax rate – 33.75%
Dividends within the additional tax rate – 39.35%
National Insurance Thresholds
Lower Earnings Limit
By paying a salary above this amount, you are protecting your entitlement to future state pension and benefits, without paying any national insurance.
£533 per month/£6,396 for the year
If you earn above this level you personally have to start paying national insurance contributions.
£1,048 per month/£12,570 for the year
If you earn above this level, your company has to start paying employers national insurance contributions but you do not pay employee national insurance.
£758 per month/£9,100 for the year
Employers National Insurance Allowance
This scheme was implemented to help stimulate economic growth and encourage small firms to take on more employees. It is open to all businesses with a total national insurance bill of £100,000 or less during the previous tax year.
Sole director companies without additional employees cannot claim the allowance.
The Employers Annual Allowance continues for those companies employing staff, enabling your company to reduce its annual National Insurance bill by up to £5,000. This remains unchanged from last year.
You must be an ‘eligible employer’ to qualify for this allowance. Please check with us to make sure that you qualify for this allowance if you’re uncertain.
How much salary should I pay myself?
It is important to receive bespoke and tailored advice to your personal circumstances as everyone is different.
There are also more aspects to consider than just tax, including:
- Tax Rates and Thresholds for the tax year
- The number of other directors or employees in the company
- Other sources of personal income (aside from the limited company)
Childcare arrangements, pension contributions and charitable donations all need to be taken into account.
It is also important to consider any future plans you may have. For instance, if you’re considering mortgage or finance applications as your pay structure may affect your eligibility.
Sole Director & Only Employee
If you’re the sole director and pay yourself a salary through your own limited company, the best amount to pay yourself is typically £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, i.e £12,750, leaving some of your personal allowance free for other income.
- A sole director cannot claim the £5,000 Employment Allowance.
- The salary is deductible for corporation tax purposes (generating a tax saving for the company about £1,729) (£9,100@19%).
Please note dividends should always be transferred separately to your salary and must have a payment reference of ‘’Dividends’’.
Two or more directors (or employees)
Having two or more directors on the company payroll means that you’re eligible to claim the £5,000 Employment Allowance.
There are a couple of scenarios:
More than £5,000 employers national insurance is likely to be incurred
Depending on the number of employees and their salaries, more than £5k Employers NI may be incurred by other employees before even considering the Directors payroll.
In this scenario, adding Directors salary above £758 per month will simply add to the National Insurance bill and the optimal salary is therefore £758 per month as it is for sole Directors (see above).
Less than £5,000 employers national insurance is likely to be incurred
For companies with only two Directors or a small number of employees Employers NI incurred on salaries above £758 per month may be waived by the Employers Allowance.
In this scenario the optimal salary will be £1,048 per month/£12,750 per year. Although Employees NI will be incurred it will be more than compensated for by the tax saving in Corporation Tax.
Our general recommendation for two or more directors is to pay a gross salary of £1,048 per month/£12,570 for the year but this is dependent on your circumstances and how many other employees are within the company.
- The salary is tax deductible, reducing the company’s profits and it’s tax liability
- You do not need to pay any income tax or national insurance personally
- You will need to operate a payroll system and submit an RTI (Real Time Information) return to HMRC for each pay period.
- Your company will need to pay employer’s national insurance for the year but if you’re eligible to claim the Employers National Insurance Allowance, payment may not be required.
- Your National Insurance record will be credited, even though you will have not actually paid any contributions. This protects your future entitlement to state benefits such as a pension.
- If you would prefer to avoid the added administrative burden of making regular Employer’s National Insurance payments to HMRC or if you’re unable to claim the Employers National Insurance Allowance for any reason, you may prefer to opt for a lower salary of £758 per month/£9,100 for the year. Payment at this level avoids all National Insurance issues and is usually more suitable for those with additional sources of income.
Please note numerous assumptions have been made when concluding the figures above. The amounts may not be the most appropriate for every Director. The figures in this article are only provided as guidance.