It’s the start of a new tax year and time to look at the most tax-efficient way for Directors to withdraw money from their Limited Companies.

Rishi Sunak’s Spring Budget update on the 23rd of March made things more complicated than normal for two reasons:

1. He raised the threshold at which employees pay National Insurance.  This is good news.  However, he didn’t adjust the threshold at which employers pay National insurance, which means that we now have 3 thresholds to consider when working out remuneration - Personal allowance (tax threshold), employee's NI threshold, and employer's NI threshold
2. He doesn’t bring the change in employee NI thresholds in until July.  This potentially could mean that we’d be working toward a different result in the first 3 months of the year and a different target in the last 9
   
   

We’ve also factored in:

• The increase in Employment allowance (for those that qualify) from £4,000 to £5,000 a year
• The increase in basic rate dividend tax to 8.75%
• The fact that the basic tax level remains unchanged at £50,270
• Ensuring that salaries are at a level where you will receive credit for State Pension purposes

We’ve crunched the numbers to come up with the most tax-efficient pay rates and have decided that we need 2 levels of pay this year, one rate for Companies with one Director and a second rate for those with two or more Directors

Companies that have one Director & no other employees

For companies where you are the only Director and have no other employees, the most tax-efficient amount to pay yourself as a salary each month is £758.33

Paying at this level means that:

• There is no tax & NI to pay
• Credit for State Pension purposes will still be received

To maximize your basic rate drawings, you’ll then be able to take dividends of £3,430 a month, without paying any higher rate tax (as long as the business is making sufficient profits)

This approach will give you a total income of £4,189 a month/ £50,270 a year

Your tax payable on this amount will look like this:

Remember - If you exceed the income level of £50,000, you will start to lose your child benefit

Remember - This scenario presumes that you don’t have any other income (eg rental income)

By keeping things at this level, you won’t have to remember to pay HMRC anything each month, keeping things nice and easy

Companies that have more than one Director and/ or employees

Companies with multiple Directors and/ or employees should pay themselves a salary of £992 a month (£11,908) a year

This takes into account the NI threshold shift in July

You can then top up with a dividend of £3,196 per month to stay just within the basic rate band (as long as the business is making sufficient profits)

This will give you a total monthly income of £4,189/ £50,270 per year

Your tax bill will look as follows:

Remember - If you exceed the income level of £50,000, you will start to lose your child benefit

Remember - This scenario presumes that you don’t have any other income (eg rental income)

There is a small (less than £191pa) tax advantage to this scenario as the higher salary saves a little more in Corporation Tax