You own your Limited Company and someone told you that as a director you need to pay yourself a salary, but have you ever wondered, are you paying yourself the most tax efficient amount?
This is a question we ask people alot, below are the things we think you should be thinking about, as you could be missing out on some big tax savings.
Get tax relief with no PAYE
If you pay yourself £663 per month or £7,956 per year, as this is the threshold for paying national insurance, so this means that your Limited Company pays you and claims 20% corporation tax on your salary and as long as you have no other income you pay no tax or national insurance. This is worth £132.60 per month or £1,591.20 per year.
If paying yourself a salary saves corporation tax, then surely a bigger salary is better?
The short answer is normally no this is not correct, because employees national insurance is 12% and employers national insurance is 13.8%, so if you pay yourself an extra £1,000 it costs you £458 in PAYE and you recover £227.60 in corporation tax, so you lose £230.40 for every £1,000.
Does your Limited Company employ anyone else?
If the answer to this is no then you can use the Employment Allowance and pay yourself the full personal allowance of £833.33 per month or £10,000, per year.
This means that you will pay £245.28 in employee’s national insurance but ZERO in employers National insurance, and the tax relief on the extra £2,044 salary is worth £408.80. So you SAVE £163.52.
How to take more than £663 or £833 per month
So your company is doing well and as a result you want to pay yourself more than the tax efficient amount.
The best option is normally to vote a dividend, this isn’t tax deductible but until you reach the higher rate tax threshold there is no extra tax on top of the corporation tax your company pays.
Ask the experts
If you have other income sources, are in higher rate tax or have a complicated company structure, then we can produce a plan for your most tax efficient options. We are always happy to help so contact us for a free meeting.