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The 2023/24 tax year started on April 6th, bringing changes to tax thresholds that limited company directors should be aware of. To determine the ideal director’s salary and dividends, various factors must be considered. As a limited company director, it’s crucial to pay yourself as tax-efficiently as possible. Your combination of tax-efficient director’s salary and dividends will impact both your personal and corporation tax bills. This article examines the optimal director’s salary and dividend levels and how to utilize your tax-free personal and tax-free dividend allowance and save on corporation tax.
How should a director adapt to the 2023/24 tax changes regarding basic directors’ salaries? Tax-efficient director’s salary and dividends Limited company owners/directors can choose payment methods, such as salary and dividends. If you are a director of a limited company, you are also considered an employee. This means that you may have to pay National Insurance Contributions (NICs) on your salary payments as both an employer and an employee. Therefore, it is essential to comprehend various thresholds and rates, such as national insurance, state pension, income tax, employment allowance, dividend allowance, and personal tax rates.
Failure to understand these could result in serious repercussions.
Your payment method in 2023/24 will also depend on the number of employees in your company, future state pension qualification, and the ideal salary and dividends mix. We’ve calculated two scenarios based on the new tax and Class 1 National insurance thresholds. Depending on your circumstances, these options help you choose the most tax-efficient salary and dividends.
Scenario 1: Assuming an annual salary of £12,570 and dividends worth £37,700, the total tax bill comes out to £3,390.11, which includes PAYE and personal taxes. Once these taxes are paid, the net annual take-home pay is £46,579.89.
Scenario 2: If your annual remuneration is £9,100, you receive dividends amounting to £41,470. After-tax deductions, your net take-home pay is £47,058.75, and you are not liable for NIC payments.
Please note that these scenarios assume you have no other income from other sources. For companies with multiple employees or directors, we recommend a monthly salary of £1,047.50 per month (£12,570 per annum) from your company, as this is the threshold where income tax and employee’s national insurance become payable.
Ensure you claim all relevant tax-deductible business expenses to reduce your profit, reducing your Corporation Tax liability and payments. In summary, determining the most tax-efficient way to pay yourself and structuring it will depend on your circumstances and tax position.
When managing one’s finances, it is important to consider numerous factors that can significantly impact one’s financial standing. These factors include but are not limited to national insurance thresholds, personal allowances, dividend allowances, state pensions, and income tax and dividend tax rates. Additionally, it is essential to consider the employer’s allowance, which can help reduce the tax burden and improve overall financial stability. By carefully considering these factors, individuals can make informed decisions about their finances and ensure they are on the right track towards achieving their financial goals. If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.