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As a director you’re legally separate from your limited company, even if you’re also the owner. This means that you’re not allowed to simply keep the profits for yourself in the same way that a sole trader can.

Instead, you’ll need to decide how much to pay yourself. The most tax-efficient way to take an income from your own limited company is normally through a combination of a low salary (in the same way as any other employee) and dividend payments.

Why should I pay myself a director’s salary as well as dividends?

As a director, you’re technically an employee of your own limited company. This is an important point, because it means you’re both an employee, and an employer – of yourself!

So how much should you pay yourself from your own company? Paying yourself as a company director is actually a bit of a balancing act in order to be as tax efficient as possible.

To get the balance right you’ll need to consider National Insurance contributions as an employee and employer, how many people there are in the business, tax allowances for dividends and for income, tax relief for employee salaries, and even the benefits of making qualifying payments for the State Pension.

Sit tight, and we’ll talk you through director’s salaries, and what the optimum amount to pay yourself is. We know it can be confusing, so get an instant quote online if you need more help!

 

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National Insurance and director’s salaries

The thresholds for employer’s and employee’s NI are different, so this has an impact on the amount of salary that you take. If you take a salary from the business and it’s higher than the National Insurance threshold (the point at which you start paying National Insurance) for both employer and employee NI:

It basically means you’re paying National Insurance twice on the same money – which isn’t very tax efficient at all!

The 2022/23 NI thresholds for employers and employees are shown in our table below. The threshold for employers is actually lower, so they start paying NI sooner than employees.

If you need to refer to the figures for 2021/22, you can view them in our tax rates article.

2022/23 Employer and employee National Insurance thresholds

Weekly NI Threshold Monthly NI Threshold Annual NI Threshold
Lower Earnings Limit (LEL): Employees who earn below the limit don’t incur NI, but they also don’t accrue NI benefits, such as qualifying payments towards the State Pension. £123 £533 £6,396
Primary Threshold: This is the point at which employees start paying NI. Any earnings below this point but above the Lower Earnings Limit still don’t incur NI, but employees will earn NI ‘credits’, and accrue NI benefits.

In 2022/23 the National Insurance Primary Threshold will increase during the tax year.

6th April – 5th July 2022

£190 £823 £9,880

6th July 2022 onwards

£242 £1,047.50 £12,570
Secondary Threshold: Employers make National Insurance Contributions on salary payments above this threshold. £175 £758 £9,100

Qualifying for the State Pension

Taking a salary which is higher than the Lower Earnings Limit (£6,396 per year in 2022/23) allows directors to build up qualifying years for their State Pension.

If your salary is above the LEL but below the Primary Threshold (£9,880) then you’ll accrue all the benefits of NI, without actually paying it. This will affect how much State Pension you are entitled to once you pass state retirement age.

Using the tax-free Personal Allowance on your director’s salary

Your Personal Allowance is the amount you are allowed to earn before you have to start paying income tax.

In 2022/23, the Personal Allowance is £12,570.

 
You only pay tax on the part of your income that is above the Personal Allowance threshold. For instance, if you earn £14,000 in a year, you’ll only pay income tax on £1,430 of it.

£14,000 (salary) – £12,570 (tax free Personal Allowance) = £1,430. The amount subject to income tax is £1,430.

If you take a salary from your limited company which is below the Primary Threshold for National Insurance (£9,880) you won’t pay tax or NI on it.

Paying tax on dividends

It’s worth noting that although they’re not subject to NI, dividends are subject to tax, but at a different rate to normal income tax. The good news is that there is also a separate dividend tax allowance that you can use on top of the Personal Allowance.

In 2022/23, the Dividend Allowance is £2,000.

Salaries are an allowable expense for Corporation Tax

A limited company pays Corporation Tax on the profit that it makes throughout the year. Claiming tax relief on allowable expenses reduces the amount of profit, therefore reducing the amount of Corporation Tax which the company pays.

Salaries are an allowable expense, so if you’re a company director then paying yourself a salary from the business can help you lower your corporation tax bill.

 

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How does the NI Employment Allowance affect director’s pay?

Thanks to the Employment Allowance, the optimum salary for a company director also depends on how many other people there are in the business.

In 2022/23 eligible employers can use the Employment Allowance to claim up to £5,000 in order to cover the costs of employer’s National Insurance.

To be eligible, employers must have at least 1 employee, or 2 directors, on the payroll, and the directors must not have another company that is claiming the Employment Allowance already. This means that sole directors can’t claim the allowance, which is why the optimum salary is a bit different for them.

2022/23 Director’s salaries – How much should I pay myself from my limited company?

Considering all the taxes and allowances together, the most tax-efficient salary for a limited company director depends on whether they’re a sole director, or there are more people in the business.

What is the best company salary for sole directors in 2022/23?

The most efficient salary for sole directors in 2022/23 is

£758.33 per month.

 
If you’re the sole director and pay yourself a salary through your own limited company, the best amount to pay yourself is £9,100 per annum (or £758.33 a month). This is because:

What is the most tax efficient salary for two or more directors in 2022/23?

Having 2 or more directors on the company payroll means that you’re eligible to claim the Employment Allowance. In 2022/23 the primary threshold will increase mid-year.

This means that the point at which you start paying employee’s NI will be £9,880 until July 2022, when the threshold increases to £12,570. Over the year, the optimum salary in a company with two or more directors is £11,908

The most efficient salary for 2 or more directors in 2022/23 is

£11,908.

 
This is because two or more directors can take an annual salary up to the primary threshold without needing to pay employee’s NI, and then claim the £5,000 Employment Allowance to cover the portion of employer’s NI they would otherwise incur.

What if I have another source of income?

The optimum amount for director’s payroll takes advantage of the Personal Allowance (£12,570), but if you are already using it up because you have other income from elsewhere, then director’s payroll becomes PAYE payroll, and subject to tax and NI as normal.

Find out more about our online accounting services for directors and limited companies. Call 020 3355 4047, ask for a call back or get an instant online quote.

About The Author

Elizabeth Hughes

A content writer specialising in business, finance, software, and beyond. I'm a wordsmith with a penchant for puns and making complex subjects accessible. Learn more about Elizabeth.

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Muhammad Mushtaq Vohra
Muhammad Mushtaq Vohra
31st May 2021 4:27 pm

Can director take pay annually? This to avoid going on the payroll monthly.

Muhammad Mushtaq Vohra
Muhammad Mushtaq Vohra
1st June 2021 2:49 pm

Many thanks for coming back. I tried to contact on the phone number given but they were not able to connect on it. Whats your direct line number?
What I am trying to understand that being a director can I take money as one lump sump(equivalent to Personal Allowance), as I am not registered as PAYE. Do I must be registered for PAYE?

Ali Lawrence
Ali Lawrence
16th January 2022 5:17 pm

If I am the sole director of a company and pay myself and another employee through PAYE, can the company then claim the employment allowance?

Mike
Mike
19th January 2022 1:34 pm

What if there is another source of income that falls already within the higher taxpayer rate?

Check12
Check12
7th February 2022 5:29 am

If a director receives £9k salary from their company and also works elsewhere as an employee. Can they inform HMRC that the company earnings should be accounted for first before all other earnings? Does this effectively mean all the employer contributions (tax, NI) are paid by the external employer rather than the directors own company?

Trish
Trish
3rd February 2022 4:34 pm

Hey Elizabeth. I am currently the sole director of my company but retiring Dec 31st 2022, and planning to gift 70 % (majority shares) to my daughter. I have 2 questions. 1) if the company has £100 , 000 profit, is it correct that the company would then pay me £30,000 per year ( salary and dividend) leaving my daughter being paid £70K ( made up of salary and dividend) In order to protect my interest what type of shares should we both have. should my daughter decide to see the sell the business ( which dependant on price, I… Read more »

jodie
jodie
18th February 2022 11:30 am

if you have another employee isnt it better to go up to 12570 instead of 9880 due to the saving corp tax at 19% over the 13.25% ers NI?

Eva Lily
Eva Lily
24th February 2022 9:35 am

Hi there,

This year I have been taking a full £30k salary as a director. Can you change this mid year to the £9.1k, obviously only two months left of tax year? What implications would this have? Would the tax get reimbursed?

Thanks

Ann
Ann
17th March 2022 12:09 pm

Hi there,
This is really helpful post. If I am the sole director but have two employees should I be on primary or secondary threshold? Does it depend on total employer NI payment in the year?
Thank you

Nicole
Nicole
25th March 2022 9:16 am

With the latest NI changes announced earlier this week what would be the most efficient salary for 2022/2023 for a company with 2 or more Company Directors. Also when should this salary come into effect – would it be from April or should it be delayed to July when the revised rates come into force. Kind regards Nicole

Nicole
Nicole
4th April 2022 10:24 am

Thanks very much Elizabeth, your update has been a great help. Kind regards Nicole

Jason Brookes
Jason Brookes
26th March 2022 8:48 pm

I’m about to start a limited company with two directors paying each £11,908 annually. Then dividend payments quarterly. However, one director is in receipt of a pension. How does this effect things?

Joe Mac
Joe Mac
29th May 2022 9:49 pm

Re the director’s “other income source” …if it is a pension am I right in thinking that it won’t affect the NI payment threshold re a salary from their business? (I am below state pension age)

Last edited 28 days ago by Joe Mac
Hema
Hema
1st April 2022 9:18 pm

Is the best salary for a company with one director and one other staff member (typically the spouse) also £11,908?

Ian
Ian
6th April 2022 2:56 pm

Hello, I am a sole director of my company (no other staff). I also have a rental portfolio that generates an income. Please can you confirm if the £9,100 annual salary would be the tax efficient rate? What would be the rate if not, or does it not matter whatsoever? For my annual self assessment tax return, will i end up paying all the shortfall in national insurance because it wasn’t taken out of my salary? Would i be paying national insurance regardless on the property income in any event, within my self assessment? Or is this only now being… Read more »

Ben
Ben
6th April 2022 4:15 pm

For a sole director, isn’t it better to pay £11,908 instead of £9,100 as there is £110 better position from Corporation Tax saving to paying Employers NI?

Nick
Nick
7th April 2022 10:20 am

Hi,

Where there are two directors of a ltd company based in Scotland, both employed elsewhere, one paying higher rates tax but taking no salary from the ltd company, the other a lower rate tax payer and taking around £8k salary from the ltd company, what changes need to be made for 2022/3 to be most tax efficient?

Neil Smith
Neil Smith
7th April 2022 12:10 pm

Great article. Thank you.
We are a two director led company so it looks like paying ourselves each £11,908 over the year is the right thing to do but does that mean a lower salary for the early part of the tax year and then I increase it in July when the NI changes happen?

Maggie
Maggie
10th April 2022 7:20 am

Hi,

Will I be eligible for the employment allowance if I’m a sole director but have employees? The above information only mentions 2 directors on payroll.

Thanks,
Maggie

Brian Hurd
Brian Hurd
12th April 2022 12:33 am

Hi. Really great post. I have two separate Limited businesses where I am a Director (completely separate one is retail the other construction). I am on the payroll for both. I claim the NIC allowance for the retail co as I have 4 other employees – but do not pay myself enough in this company to participate in the benefit (ie my pay is below the Employer NI threshold) In the construction company myself and my wife are directors and we claim the NIC allowance – and we pay ourselves over the Employer NI threshold. Is that ok ? –… Read more »

Cathrine partridge
Cathrine partridge
12th April 2022 12:33 pm

This was a very useful article. Thank you.
For a company paying two directors and paying £11908 for the year is it best to pay a monthly amount of £823 until July and then £1047.50 thereafter or divide the yearly amount by 12 and pay £992.33 ever month or does it not make any difference due to directors averaging?
Many thanks

Cathrine partridge
Cathrine partridge
13th April 2022 1:20 pm

Many thanks, I appreciate your quick response.

Damon
Damon
6th June 2022 2:02 pm

I’m due to leave the military and will receive an EDP payment each month. This will currently be below the LEL national insurance limit. So in this instance would I pay myself even less of a salary to top it up to to receive all the benefits of the national insurance and top it up with dividend payments?

Ross Hayward
Ross Hayward
8th June 2022 8:46 pm

What new responsibilities do I have once I sign up for directors payroll? I think you are then classed as an employer even if you are the only person in the business.

LESLEY
LESLEY
10th June 2022 11:14 am

i have just recently set up a Limited Company, I will be showing my self as having a Salary of £9100, how can i take my dividends out, can this be on a monthly basis?

Matt
Matt
22nd June 2022 12:40 pm

Hi. I am the sole director of my company but I work elsewhere also. Would I be able to pay myself a very minimal amount of say £50 a week so I don’t pay NI or income tax on the amount but also be able to claim the total amount over the year against my Corporation Tax? Many thanks in advance.

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