Small Business
Business Start Up
Contractors
Freelancers
Landlords
Sole Trader
Construction Industry
Accounting
Bookkeeping
Payroll/Auto enrolment
Self-Assessment
VAT Returns
Year End Accounts
Accounting Software
Tax Advisory
Find a Professional
Business Recovery & Company Closures
IR35 Review
R & D Tax Credit
Seed Enterprise Investment Scheme (EIS/SEIS)
Tax Planning
Special Purpose Vehicle SPV
Corporate Advisory
Business Support Services
Business Insurance
Business Plan
Management Accounts
Company Formation
Tax Investigation Cover
Free accounting software
Our Story
Achievements
Charities
Blogs
Webinars
Newsletters
How to pay yourself as the director?
If you are the director of a limited company, you must consider taking the salary. Make sure that you are following the rules set by the HMRC so that you effectively. The officeholders will not be responsible for following the National Minimum Regulations.
If you take a low salary, you will not need to pay the National Insurance Contribution or Income Tax. If you are a UK taxpayer, you will be subjected to Personal Allowance. The Personal Allowance will further be free from the Income Tax, and the threshold will vary significantly.
People living in the UK need to be familiar with the National Insurance thresholds, which is less than the Personal Allowance. It would help if you considered comparing the National Insurance thresholds while you determine your salary. Here are some of the most important factors to consider:
- Lower Earning Limit: You will be eligible for a State Pension contribution record if you set the salary above this level.
- National Insurance Primary Threshold: You will not need to pay the employee's NIC if you set the salary below the National Insurance Primary Threshold.
- National Insurance Secondary Threshold: The limited company owner will not be liable for paying the NIC of any employer if they set their salary below this level.
It is advisable to set the salary above the Lower Earning Limit. You will be eligible for state pension benefits. Besides, you will not need to pay for the employee NI or employer's NI. This will save a significant amount.
Why should you consider taking a higher salary?
As a limited company director, you must consider taking a salary. While setting your salary below the Lower Earning Limit can be beneficial, you must also opt for the higher salary.
When you set your salary way too low, you may be eligible for various negative impacts. Some of the common reasons why you may want to set a higher salary include the following:
- You must comply with the regulations set by the National Minimum Regulations. As a result, you will be eligible for maternity benefits which may not be effective if you take a low salary.
- If you have any problems with the National Minimum Wage Regulations.
- If there is a reduction in life insurance cover for personal accident, health or critical illness, which may not be covered in your policy. It is often calculated as per the earnings.
- You don't have the flexibility of applying for a mortgage. When your salary is low, you must meet the minimum eligibility criteria while applying for a mortgage or loan.
- You may not be eligible to enjoy the benefits of tax-free personal allowance if your salary is way too low.
Pay yourself in dividend
As a director of the company, you must consider paying dividends. This is one of the most feasible options when your company makes a profit. Once you accumulate the profit, you can reinvest it in the company. Apart from that, you can pay it to shareholders.
As an owner of the company, you are also the shareholder. Even if you hold a tiny percentage in your limited company, you will be eligible to pay yourself in dividends. Not only does it help to lower personal taxes, but it can also be one of the best ways to save money for your company.
When you combine salary with dividend payments, you will be liable for tax efficiency.
What are the taxes implied when you take a salary?
As director of a limited company, you must consider being familiar with the tax implications. The salaries will be subjected to Pay-as-you-earn Tax for all the regular full-time employees.
It will help reduce the Corporation Tax liability when you take a higher salary. As a result, it will help to outweigh any extra fax paid. Given below are the tax-implication details that you must be aware of:
- Income tax
Income tax is subject to the earnings of the employees, and it will also apply to other sources of income. The Income Tax rates will vary significantly, and therefore, you must consider comparing the thresholds and tax rates. - Employer national insurance contributions
This will work in the same manner as that of employees. The National Insurance earning threshold will vary. Usually, the employer will need to pay 13.8% NIC, directly applicable to the director's salary. - Employee national insurance contribution
The Employee National Insurance Contribution and Employer National Insurance Contributions have similar characteristics. However, the rate of employees will vary from that of employers, and every employee will be subjected to different earnings.
The threshold amount is usually set as per the monthly amount. The threshold for the employer is usually 52 times higher than that of a regular employee.
Conclusion
As a director of the Limited Company, you must consider taking a salary. This will protect you against the risk of paying any income tax. Consider the lower earnings limit to understand the pension scheme and more. You may consider reaching out to professional accountants who can help you understand the benefits of taking a salary as an accountant.
Book a Free Consultation
Get in Touch
Get the best advice on tax savings, accounting services, payroll, self assessment, VAT and more, whether you want to call us directly, request a call back or chat online with our experts, rest assured that we will always give you the best advice.If you have any questions, or would like to speak to us in person, please do get in touch. We're here to help.
Head Office:
dns accountants
DNS House, 382 Kenton Road,
Harrow, Middlesex, HA3 8DP
Contact Number:
Email:
Other Offices:
Award winning experts
trusted by many
We're proud of our clients and their success. Find out more about them and
the help
and support we provide.
Here’s what our clients say
“I recently started my own company and in need of a good accountant. With my friends reference, I started DNS accountancy services and I am a quite satisfied with their service. My account manager Sneha Gurudutta was always responsive and guided me a lot especially during my company early days. Keep u the good work.”
Here’s what our clients say
“I have been DNS for the last 3 months and I am very happy with the service. My account manager Sneha Gurudutta guided me and helped me with all the major/minor steps with the account setup. The weekend support they provide is really helpful. I would definitely recommend DNS to all my friends.”
Here’s what our clients say
“Unfortunately my son passed away without leaving any contact name of his accountant. I was able to make contact with the firm through HMRC. The staff were very prompt, caring and supportive in settling his income tax account. I was extremely impressed with the efficient caring and supportive service received from all of DNS staff.”
Here’s what our clients say
“Been with dns accountants for more than a year I would highly recommened their services. My account manager Sneha has been very helpful and helped with accounts and queries swiftly always! Having a good accountant means you can fully focus on your business, not worry about accounts and tax matters. Thank you DNS :-)”
Here’s what our clients say
“I have been extremely satisfied with the service I have been receiving close to past 1 year. Very professional, transparent and helpful. Special mention of my Account Manager Minakshi Arora who made my transition very smooth and always ready to go that extra mile to support and make customer happy. Definitely recommended.”
Here’s what our clients say
“I've recently set up a Ltd. Company and signed up with DNS for my accounting services. I've found it very good value for money and hugely helpful in terms of advice and guidance. I have a named Account Manager, Sneha Gurudutta, who keeps in contact with me and offers advice on line and on the phone... I'm really pleased with the service.”
Free Business Software!
Limited time only!
Free Business Software
Say Goodbye to Bookkeeping Hassles: Nomi offers Free Receipt Processing and big savings!
- Built in payment solutions.
- Track profitability, debtors and creditors
- Snap pics of receipts with the mobile app
- Free Receipt Processing
- Hasslefree Bookkeeping
- Cost Reduction
Close
