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  • Stephen Kelly

Optimum Salary for Sole Director Limited Companies

As the National Insurance Contribution (NIC) employment allowance (see earlier blog post) is not available to companies where the sole director of the limited company is also the businesses sole employee.

When this is the case for most directors the maximum salary that can be paid free of tax and NIC for the 2023/2024 tax year is £9,100, but it is worth noting that the salary cost and employer’s NIC are deductible for Corporation Tax (CT). Therefore it can prove worthwhile paying a salary up to to the NIC primary threshold of £12,570 (also equal to the income tax personal allowance) and suffering the employer’s NIC at 13.8% on income between £9,100 and £12,570 as the Corporation Tax (CT) deduction is likely to exceed the employers NIC charge at 13.8%.

But, should the director’s salary exceed £12,570 then there is employee’s NIC at 12% and income tax @ 20%, then the combined NIC and Income tax cost starts to outweigh any CT savings. Therefore the salary should not normally exceed this £12,570 and any further income will normally be then be taken as a dividend.

So which is the 2023/2024 optimum salary: £9,100 or £12,570?

If you where to look at the best “cash” saving then for 2023/2024 the optimum salary would be £12,570, but this would mean Employers NIC has to calculated and paid over to HMRC (likely to be a quarterly basis, but can be annual) and given that the saving is only small some directors decide to pay the £9,100 salary for ease.

Finally, it's worth noting that if the director has other personal income sources in the tax year, such as other employment income, rental income, pension income or investment income which utilised some or all of the personal allowance, then it could prove that a no salary from the company should be paid at all.

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