We advise directors to pay a salary of £1047.50 per month or £12,570 for the 2024/25 tax year as this is the most tax efficient salary.
Why is this the most tax efficient salary?
The lower earnings limit (LEL) for NI in 2024/25 is £6,396 per annum, if you earn over this amount it will count as a qualifying year for your future state pension.
The primary earnings limit (PT) for NI in 2024/25 is £12,570 per annum. If your annual salary exceeds this amount, then you the employee will need to pay NI contributions.
The secondary earnings limit for NI in 2024/25 is £9,100 per annum. If your annual salary exceeds this amount the employer (your business) will need to pay NI contributions.
As salary is an allowable expense for Corporation Tax in the accounts, the cost of the salary creates a saving for the company in respect of Corporation Tax, in addition to this saving, the employee (director) will not pay any tax on the income as it is within the tax free allowance.
Paying a salary of £12,570 to the director saves corporation tax of anywhere between £2,388 and £3,331. There is no such saving if only dividends are paid.
By paying a salary of £12,570 you are ensuring another qualifying year for the state pension is added.
For more information on this subject please feel free to contact us at the office and we will be happy to assist you.
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