How to Pay Yourself as a Ltd Company - Directors Salary 2021/2022 - Dividends vs Salary UK

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Yes, having a limited company can save you tax versus self employment! And no, it's not at all obvious how or why! Let me tell you how to tax efficiently take money out of your UK limited company as a director in 2021/22 using the right balance of dividends and directors salaries. Although I'm using the England, Wales + Northern Ireland tax rates, these same thresholds should apply to Scottish residents too.

0:00 Intro
0:56 Does a Ltd company save you tax?
2:12 The flow of money
3:20 The right amount to take
4:03 Your price
5:06 Why some salary is good
6:15 How to work out the right salary for you?
7:45 Dividends
8:51 Pensions
10:03 Last tips

Does a limited company save you tax? Not automatically, no, but if you take the right balance of dividends and salaries then you can save over £3,000 in tax in a single year compared to being self employed. That figure can be even higher versus PAYE-only employment... And for companies with two directors... AND for companies making more than £60,000 and rolling forward retained earnings to later years. But yeah, big tax savings available for people who navigate this right.

But you'll never understand how to efficiently take money out of your company if you don't understand how money flows through your company.
Your company earns income
then pays for the things it needs to trade
That leaves profit before salaries, taxes and dividends
then it pays salaries, some of which goes to HMRC, some to you
That leaves profit before taxes and dividends
then it pays Corporation Tax at 19%
That leaves profit before dividends
then it pays you dividends, some of which goes to HMRC, some to you
That leaves retained earnings in the company for future years.

The right amount of salary:
• If you're a sole director, with no other income, take £9,568 salary.
• If you get to use the Employment Allowance, take £12,570 salary.

If you have other taxable earnings (rental profits after allowances, sole trading, other PAYE jobs):
• then add those up and take them off £12,570,
• then pay yourself a salary that is the lower of that number you just found or the salary you would have paid without any other income (which, again, is probably £9,568).

For dividends, take out the lower of what is left in the company after salaries and Corporation Tax, or the amount that will get you to the £50,270 higher rate threshold.

Tax rates you wish you didn't have to know about:
• Corporation Tax = 19%
• Income Tax basic rate = 20%
• Income Tax higher rate = 40%
• National Insurance Class 1 employee's = 12%
• National Insurance Class 1 employer's = 13.8% super secret tax
• National Insurance Class 4 = 9% (and 2% above the higher rate threshold).

And the thresholds these all kick in at?
• £8,840 Secondary NI, for employer's NI
• £9,568 Primary NI, for employee's NI and class 4
• £12,570 Personal Allowance, for income tax
• £50,270 Higher rate threshold
There are others, but if you reach them you should probably be talking to an accountant, and they don't directly affect the numbers in this video.

I talk about pensions in here, which can save you loads of tax but which only give you the promise of money in the future, which is very definitely not the same as money you can spend now.

Let me know if you have any questions in the comments.

Thanks for watching!

https://www.thecoppercoins.co.uk/

If we haven't met yet, then hi, I'm Benedict, I'm a Chartered Accountant. This channel is my place to give tips and advice to freelancers, small business owners, start ups, entrepreneurs... anyone who might need a bit of guidance from an accountant in the UK.

My accounting firm is called The Copper Coins; head over to my website if you need more help than a YouTube video can provide.

DISCLAIMER TIME: Are you my client? No? You don't have an engagement letter from me with my signature on it? Well then I guess you're not my client, not right now at least. So, of course, I have to warn you that this is just general information, just me talking about my experience with accounting, and that my company and I can't be held responsible for what you do with this information. I make these purely to be helpful, but I may have made a mistake, or brushed over some subtleties of the law, or you might be in a situation that means this information is wrong for you. If you want personal accounting advice, go find an accountant and talk to them and maybe hire them. I might be taking on new clients if you want to get in touch. Thanks.