Finding the Sweet Spot: The Ideal Director\u2019s Salary<\/b><\/p>\n
<\/p>\n
In a previous post, we looked at the different ways you can extract income from your limited company: by paying yourself dividends from the company\u2019s profits, or by taking a salary as a company director. (Spoiler: we concluded that a mix of the two is the best way to make the most of your company\u2019s earning potential. You can read the full post <\/span>here<\/span><\/a>.)\u00a0<\/span><\/p>\n If a director\u2019s salary is in your sights, you might be wondering how much that salary should ideally be. Let\u2019s look at the different factors that affect this calculation.<\/span><\/p>\n The tax-free allowance<\/b><\/p>\n In theory, a director\u2019s salary can be as little or as much as you want to pay yourself. There\u2019s no minimum wage requirement and no cap on earnings. However, there are tax and National Insurance factors that you should consider, starting with the tax-free annual personal allowance. In 2021\/22, this is \u00a312,570 per year.<\/span><\/p>\n If you already have other income that exceeds that amount, your salary will be taxable as normal on a PAYE basis. But if you don\u2019t, then part or all of your director\u2019s salary can be free of income tax. So this is one number that should be part of your calculations.<\/span><\/p>\n National Insurance<\/b>\u00a0<\/span><\/p>\n A salary is a great asset because it\u2019s stable and predictable. You don\u2019t have to wait to be in profit before you can extract income from your business, as you do with dividends. And, once you cross a certain threshold, you\u2019ll also accrue National Insurance (NI) contributions towards your state pension and benefits.\u00a0<\/span><\/p>\n The current threshold (Lower Earning Limit) to qualify for NI is \u00a36,396 per year. If you earn under this amount, you won\u2019t pay any NI and you also won\u2019t accrue any contributions. If you earn above \u00a39,880 (the Primary Threshold), you will start paying 12% NI on your earnings.\u00a0<\/span><\/p>\n The killer here is the Secondary Threshold, which is set a little below the Primary Threshold at \u00a39,100. At this point, <\/span>both employer and employee become liable to pay NI contributions<\/span><\/a>. If you\u2019re not careful, you can end up paying two sets of contributions on the same salary: as company owner (employer) and company director (employee).<\/span><\/p>\n However, if your salary sits in that sweet spot between the Lower Earning Limit and Secondary Threshold, you\u2019ll have the best of both worlds. You won\u2019t pay any NI, but you will accrue credits that will count towards your record of contributions. Ideally, then, your maximum salary as a company director is \u00a39,100 per year.<\/span><\/p>\n One director or two?<\/b><\/p>\n If your company has two or more directors, the <\/span>Employment Allowance<\/span><\/a> means that you \u2013 in your role as company owner \u2013 can claim an annual reduction of up to \u00a34,000 on the National Insurance you pay for your employees. This effectively eliminates the double-contribution problem and raises the limit of your ideal salary to the Primary Threshold: \u00a39,800.<\/span><\/p>\n Setting the right director\u2019s salary is just one way to make the most of your limited company. Our friendly, affordable online accounting service can help you navigate self-employment with ease. Just <\/span>get in touch<\/span><\/a> for a free, personalised quotation.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Finding the Sweet Spot: The Ideal Director\u2019s Salary In a previous post, we looked at the different ways you can extract income from your limited company: by paying yourself dividends from the company\u2019s profits, or by taking a salary as a company director. (Spoiler: we concluded that a mix of the two is the…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rank_math_lock_modified_date":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-770","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/posts\/770"}],"collection":[{"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/comments?post=770"}],"version-history":[{"count":1,"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/posts\/770\/revisions"}],"predecessor-version":[{"id":771,"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/posts\/770\/revisions\/771"}],"wp:attachment":[{"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/media?parent=770"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/categories?post=770"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/taxtribe.co.uk\/wp-json\/wp\/v2\/tags?post=770"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}