As a director of a limited company, you have the flexibility to determine your pay in a way that differs from a PAYE employee.
How can you pay yourself?
You can choose to receive a salary through the PAYE system and also obtain dividends from the company’s profits.
This arrangement can be tax-efficient, as dividends are subject to lower tax rates than Income Tax.
You may also be eligible for specific employee expenses, such as tax-free reimbursements for travel and subsistence costs.
A directors’ loan can offer tax-free or low-tax access to the company’s funds. However, you need to think about the profitability of your company and its ability to make payments.
What salary should you take?
When running an owner-managed business, you usually have the choice to balance your income between a salary, dividends, or a combination of both.
Directors without other income sources should aim for the optimal director’s salary of £12,570 and receive any additional income through dividends.
This figure is based on National Insurance (NI) rates, with the lower earnings limit set at £6,396 per annum. Earnings above this threshold count towards qualifying years for your future state pension.
Balancing your salary and dividends is a complex matter so it is essential to seek professional advice. Contact our team today for support.
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