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!

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