Limited Company - Salary
Setting your salary level is completely up-to you as a director.
Setting your salary level is completely up-to you as a director. You have three main options to choose from:
- The tax and NIC free allowance
- The National Minimum Wage
- A commercial salary rate
Each has different implications explained below.
1. The tax and NIC free allowance
The tax and NIC free allowance, currently set at £7,956 would mean you pay no income tax or national insurance. This is obviously very tax efficient, but if you make large personal pension contributions you would not be able to do this.
2. The National Minimum Wage
The NMW is set at £6.50 per hour, so based on a typical 37.5 hour week, this would equate to an annual salary of £12,675. Paying an extra £4,719 as salary above the tax & NIC free allowance would mean paying slightly more in taxes overall.
HMRC have stated that although the NMW applies to all employees, they will not seek to enforce it against directors of companies. Therefore as long as you do not have a written contract of employment with your company you are able to set your salary at £7,956 at the tax and NIC threshold.
3. A commercial salary rate
The third option would be to pay yourself a commercial salary – i.e. the rate you would get for doing the job you do if you were working for someone else. Depending on the salary level this would result in a higher tax and NIC liability.
CMJ Accountancy Service
You can choose which ever level of salary you wish. There are obvious tax saving advantages to some but you must also consider the level of pension contributions that you may wish to make and if you are applying for a high-street mortgage, this may be an issue. In conjunction with our Independent Financial Adviser partners we can advise you of the best salary level to choose depending on your individual situation and then help you secure a specialist mortgage or set up a suitable pension plan
Salary in Practice
When you have decided on the level of salary you wish to pay yourself, we will prepare your payroll for you each month and send you a payslip.
This payslip will show you;
- How much to transfer from your company bank account to your personal account.
- How much income tax and NIC to put into your business savings account which we will also tell you how and when to pay this to HMRC.
For further help, or to enquire about joining our services, please call us on 0845 834 0264 or drop us an email at firstname.lastname@example.org.
This information is for general information only. We take no responsibility for any action taken or refrained from in consequence of its contents. Always seek our professional advice specific to your circumstances before acting.