What is the most tax efficient director’s salary in 2024/25?

What is the most tax efficient director’s salary in 2024/25?

As a director of a limited company, you decide how much to pay yourself in order to maximise tax reliefs and minimise your tax bill. Most limited company directors pay themselves a combination of salary and dividend. The way you structure you director’s remuneration to be the most tax efficient will depend on your own circumstances and the number of directors and employees your company has.

Below is our advice on how to pay yourself tax efficiently in 2024/25

Salary for companies with one employee or director

For the new 2024/25 tax year (6 April 2024 onwards) we recommend that you maintain the monthly salary drawn from your company at £1,047.50 per month (£12,570 per annum).

This is because the thresholds where both income tax and employee’s national insurance becomes payable have been kept  at the level of £12,570.

However, the threshold where employer’s (company) national insurance becomes payable is only £9,096. Therefore, employer’s national insurance of £479 each year will be payable (£12,570 less £9,096 x 13.8%). However, the corporation tax relief will be between 19% and 25% on the increased salary (£660 to £868 per annum), so the company will still be better off.

Salary for companies with more than one employee or director

For the new 2024/25 tax year (6 April 2024 onwards) we recommend that you maintain the monthly salary drawn from your company at £1,047.50 per month (£12,570 per annum).

This is because the thresholds where both income tax and employee’s national insurance becomes payable is £12,570.

The threshold where employer’s (company) national insurance becomes payable is only £9,096. However, the ‘Employment Allowance’, which you are entitled to because you have more than one employee and/or director on the payroll, reduces the national insurance charge to nil.

Dividends

For 2024/25, the tax free dividend allowance has been reduced to £500. Dividend amounts within this band will be tax free, as will any dividends covered by the remaining unused personal allowance.

Once the £500 dividend allowance has been used up, there will be a 8.75% rate of tax on dividends over that amount, but remaining within the basic rate band.

Dividends entering the high rate tax band will be taxable at 33.75%. The high rate tax band applies once total income exceeds £50,270.

Dividends entering the additional rate tax band will be taxable at 39.35%. The additional rate of tax applies once your total income exceeds £125,140.

The £500 allowance needs to be taken into consideration in determining the rate of tax on your dividends. It is treated as using up part of the basic rate tax band, and is not in addition to the basic rate band.

Summary

How much you pay yourself and how you structure this will depend on your personal circumstances. It is recommended that you seek advice if either or the above scenarios don’t suit your own personal needs. For more help and advice on the optimum salary and dividend payments for 2024/25, contact our team in Chester, Wirral, or Liverpool.