A director of their own company can pay themselves what they like within the scope of their own judgement. However, this guide assists directors who want to minimise the tax amount on their salaries. These business directors will choose to pay themselves a minimum salary and extract their remaining remuneration through dividends, pensions, benefits in kind etc.
National Insurance contributions have undergone a few changes recently. Directors may be unsure what they can now pay themselves for this tax year 2022/23. The amount may vary depending on which employment allowance does, or does not apply.
A sole director with no other employees (you are not eligible for employment allowance):
You can pay yourself a salary through your limited company, we recommend the best amount to pay yourself is: £9,100* per annum/ £758.33 a month.
- The above figure is at the secondary threshold, so your company will not need to pay employer’s National Insurance Contributions (NICs) on the amount
- This salary amount is lower than the primary threshold, so you will not need to pay employee’s NICs in this situation
- The salary is positioned above the lower earnings limit, so you will still earn NICs credits. This is great news for your state pension
- This amount is less than the tax-free personal allowance threshold
- As a sole director you cannot claim the employment allowance.
Two or more directors, or a director and another employee, (you are eligible for employment allowance):
This situation for 2022/23 will take more calculating due to the changes in the primary threshold that happened mid-year.
The point at which you start paying employee’s NICs will be £9,880 until July 2022, when the threshold increased to £12,570.
The optimal salary in a company with two or more directors is £11,908 over this financial year.
- Two or more directors can take an annual salary up to the primary threshold without needing to pay employee’s NICs.
- They can then claim the £5,000 employment allowance to cover the portion of employer’s NICs they would otherwise incur.
*If you need more help on what the primary and secondary thresholds are, please see our blog: https://teamsas.co.uk/your-handy-glossary-of-terms-for-national-insurance-contributions-nics/.
Disclaimer: This resource is provided as a reference guide only and we recommend seeking professional accounting advice before making decisions. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.