How to Pay Yourself as a Ltd Company UK | BEST Directors Salary 2024/2025 (Dividends vs Salary)

The MOST TAX EFFICIENT SALARY to pay yourself as a DIRECTOR of a Limited company in 2024/2025. This is how much I will be paying myself as a DIRECTORS SALARY this year and this is the recommended salary that has been APPROVED by my ACCOUNTANT.

Although this is not financial advice and I am not an accountant, for the majority of people I am confident this is the best way to pay yourself from a Ltd company in 2024/25.

In the 2024 Spring budget, the chancellor announced further cuts to employee's National Insurance bringing it down to just 8%. Although this is lower than in previous years, I still recommend paying a director's salary below the primary National Insurance threshold.

Salaries above the primary threshold are subject to double taxation, 13.8% employer's National Insurance and 8% employee's National Insurance. This is why recommend paying dividends above the primary threshold instead as NI does not apply to dividends.

Income tax and national insurance thresholds are unchanged this year, the chancellor has previously frozen these thresholds so that they generate greater tax revenues. As salaries increase but the thresholds remain the same the government can generate more tax revenues.

Dividends vs Salary
Combining a basic salary and dividends is usually the most tax efficient way to pay yourself from a Ltd business. The basic salary makes full use of the tax free personal allowance and dividends offer a better tax regime than the traditional income tax + national insurance combination.

Depending on your personal circumstances, this may not always be the case and you may be better off with a full PAYE salary. I recommend discussing your personal situation with an accountant so they can advise what the best director's salary would be for your Ltd business.

The secondary NI threshold is the same level as the personal income allowance which means it is more tax efficient to take a slightly larger base salary than in previous years.

Income Tax rates and thresholds for 2024/2025:
• Personal allowance = £12,570 (0%)
• Basic rate = £12,571 to £50,270 (20%)
• Higher rate = £50,271 to £125,140 (40%)
• Additional rate = £125,140+ (45%)

Note: For every £2 you earn over £100,000 you lose £1 of personal allowance.

Dividend tax rates and thresholds for 2024/2025
• Basic rate = £13,071 to £50,270 (8.75%)
• Higher rate = £50,271 to £125,140 (33.75%)
• Additional rate = £125,140+ (39.35%)

Dividends Explained
• Dividends are payable to shareholders from current year profits or retained profits from previous years
• Dividends can be paid monthly, quarterly or annually (interim dividends) or after the annual accounts (final dividends)
• Dividend tax is paid via self assessment
• The tax free dividend allowance for 2024/2025 is = £500

National Insurance rates and thresholds for 2024/2025:
• Lower Earnings Limit (Pension Threshold) - £6,396 per year (£533 per month)
• Primary Threshold (Employees) - £12,570 per year to align with personal allowance (£1,048 per month)
• Employees Rate: 8% up to £50,270 and 2% over £50,270
• Secondary Threshold (Employers) - £9,100 per year (£758 per month)
• Employers NI = 13.8% above the secondary threshold (no reduction above £50,270)

NI is the core reason directors pay themselves Dividends, it prevents the double taxation of employees and employer's National Insurance which is 21.8%!

Corporation tax rates and thresholds for 2024/2025:
• Less than £50,000 (Small Profits Rate) = 19%
• £50,001 to £250,000 = Marginal Relief
• £250,000+ = 25%

Most Tax Efficient Director’s Salary 2024/2025
• Recommended Salary: £12,570 Per Year / £1047.50 Per Month (Above this pay dividends instead)
• It makes full use of your personal allowance
• Above LEL threshold to qualify for state pension
• Below primary threshold (no employees NI)
• Above secondary threshold so employers NI becomes due from £9,100 to £12,570(£3470 at 13.8% = £478)
• However, salaries are an allowable business expense saving on corporation tax at a minimum of 19%: £3470+ £478 at 19% = £750 (Save £272)
• NI payments can be made monthly/quarterly, the best salary that doesn't require National Insurance payments is £9100 per year.
• A £5,000 Employment Allowance is available to Ltd companies with at least 2 directors/employees (inc. husband & wife directors) earning above the NI Secondary Threshold

How do you pay yourself as a director of a Ltd business in 2024/2025? Let us know your preferred director's salary in the comments below!

Видео How to Pay Yourself as a Ltd Company UK | BEST Directors Salary 2024/2025 (Dividends vs Salary) канала Honest Money