As a director and shareholder of a limited company, you are able to decide how to pay yourself in a manner that will maximise tax reliefs and contribute to minimising both your personal and company tax bill. Depending on personal circumstances, most often company directors will pay themselves in a combination of salary and dividends. However, the actual figures will depend on what else is happening in your financial world.

Tax efficient salary for 2024/25

For the 2024/25 tax year, the most tax efficient salary remains at £12,570 per year or £1047.50 per month. This is the salary that can be taken without any deductions for tax or national insurance. If you are in receipt of any benefits in kind from your company, such as a company car or private medical insurance, this should also be taken into account when thinking about the most tax efficient salary for yourself.

National Insurance

As £12,570 is below the threshold for Class 1 National Insurance Contributions (NICs), as a director with this salary you will not have to personally pay any Class 1 NICS. However, the company will have to pay 13.8% Class 1 employers NICS on any salary above £9,100. As the corporation tax relief will be between 19% and 25%, the company will still be better off.

Companies with more than one director or employee are entitled to ‘employment allowance’ which is a government scheme that helps eligible employers reduce their National Insurance liability by up to £5,000 per year. Depending on the number of employees and the salary received, this could reduce the national insurance charge to nil.

Dividends

For 2024/25, the tax free dividend allowance has been reduced from £1,000 to £500. Once this dividend allowance has been used up, there is a tax rate of 8.75% on dividends over that amount but remaining within the basic band rate. Basic rate applies to a total income of up to £50,270.

Dividends entering the higher tax rate band will be taxable at 33.75%.This higher rate band is applied once total income exceeds £50,271.

To sum it up

In general, a salary of £12,570 and dividends of £37,700 will be the most tax efficient and will keep you in the basic rate tax band, assuming that you have no other forms of income. However, as this can vary depending on personal circumstances, so we would always recommend that you seek advice on these matters.

Get in touch with our team who would be more than happy to discuss this and create a personalised tax efficient plan with you.