How to Pay Yourself from a Limited Company UK | Best Way to Pay Yourself as a Director in 2024/2025

Discover the Best Way to Pay Yourself as a Director of a Limited Company for the Tax Year 2024/2025.

As a director of a limited company, determining the most tax-efficient salary for yourself is crucial. Let's delve into the recommended salary approved by accountants for this fiscal year.

Salaries exceeding this threshold face double taxation, subject to both employer's NI at 13.8% and employee's NI at 8%. Hence, diverting dividends above the primary threshold proves a wiser approach, as NI doesn't apply to dividends.

Income tax and NI thresholds remain unchanged this year. Frozen thresholds, combined with rising salaries, translate to increased tax revenues for the government.

Combining a basic salary with dividends typically emerges as the most tax-efficient remuneration method from a limited business. Basic salary usage maximises the tax-free personal allowance, while dividends offer a favourable tax regime compared to the conventional income tax and NI combo.

Nevertheless, individual circumstances may warrant a full PAYE salary. It's advisable to consult an accountant to ascertain the ideal director's salary for your limited business.

For the 2024/2025 fiscal year, income tax rates and thresholds are as follows:

- Personal allowance: £12,570 (0%)
- Basic rate: £12,571 to £50,270 (20%)
- Higher rate: £50,271 to £125,140 (40%)
- Additional rate: £125,140+ (45%)

On the other hand, dividend tax rates and thresholds for the same period are:

- Basic rate: £13,071 to £50,270 (8.75%)
- Higher rate: £50,271 to £125,140 (33.75%)
- Additional rate: £125,140+ (39.35%)

Key Facts About Dividends:

- Payable to shareholders from current or retained profits
- Can be disbursed monthly, quarterly, or annually
- Taxed via self-assessment
- Tax-free dividend allowance for 2024/2025: £500

National Insurance rates and thresholds for 2024/2025 include:

- Lower Earnings Limit (Pension Threshold): £6,396 per year
- Primary Threshold (Employees): £12,570 per year
- Employees Rate: 8% up to £50,270, 2% thereafter
- Secondary Threshold (Employers): £9,100 per year
- Employers NI: 13.8% above the secondary threshold

Corporation tax rates and thresholds for 2024/2025:

- Less than £50,000 (Small Profits Rate): 19%
- £50,001 to £250,000: Marginal Relief
- £250,000+: 25%

Most Tax-Efficient Director’s Salary for 2024/2025:

- Recommended Salary: £12,570 per year / £1047.50 per month (Dividends for amounts above)
- Utilizes personal allowance fully
- Above LEL threshold for state pension eligibility
- Below primary threshold (no employee NI)

Corporation tax savings on allowable business expenses:

- Salary
- National Insurance
- Pensions

The costs below can be expensed if solely used for your business:

- Startup costs (can be claimed up to 7 years before the company starts trading)
- Health check and eye test expenses (if you use computer screens as a big part of your job)
- Business insurance expenses
- Advertising, marketing and PR expenses
- Accommodation expenses for business trips
- Bank charges
- Phone bills
- Equipment expenses including phones, computers and more.

Timecodes:

0:00 - Intro
1:25 - Income Tax
3:16 - National Insurance
8:40 - Corporation Tax
10:29 - Dividends
13:53 - My Recommended Salary
14:15 - Reasons for Recommended Salary

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