Should I increase my director’s salary for 2016/17?
This is a question we have been asked a lot recently and the simple answer is no!
The most tax efficient salary for a director is to stay below the limits of both PAYE tax and National Insurance (NI) contributions.
Normally these limits would increase each year and therefore in line with this increase your director’s salary would increase also.

But my tax-free allowance has increased this year so why hasn’t my director’s salary?
Many will have received an increase in the amount they can earn tax-free this year (know as their personal allowance). The personal allowance for 2015-16 was £10,600 and for 2016-17 is £11,000. This effectively means that an extra £400 can be earned in the year without suffering tax.
However, NI contributions are triggered at a lower threshold than tax and so it is the NI allowances for the year that determine the most efficient salary for a director to take during the year.

Ok, so what are the NI limits for this year?
The NI allowances for this year have actually remained the same as last year and so this is simply why there is no benefit in increasing your director salary this year.

However, this is not a one size fits all scenario. You should always discuss your personal circumstances with your accountant to determine what works best for you. If we are your advisors and you’d like to discuss this further please call us on 01872 300232 or email us at hello@hivebusiness.co.uk.