How to Pay Yourself as a Ltd Company UK | Best Directors Salary 2022/2023

The MOST TAX EFFICIENT way to pay yourself from a LIMITED COMPANY in 2022/2023. In this video, I will show you the THREE best directors salary and dividend combinations for the tax year April 2022 to March 2023.

The BEST WAY to pay yourself from a Ltd company is usually with a basic salary and dividends. For company directors, paying yourself with a basic salary and dividends will usually save on tax compared to paying a full salary via PAYE.

People often get confused and think that it is Salary vs Dividends, when in reality, it is a combination of the two that is the best way to pay yourself as a director.

In this video, I share what I believe are the best salaries to pay yourself as a director of a limited company in 2022/23, however, I am not an accountant and I would highly recommend speaking with one to find the right salary for you.

There have been a number of recent announcements to be aware of that have had an impact on this year's figures:

• The personal allowance (£12,570) has been frozen for 4 years
• The National Insurance primary threshold will increase on 6th July 2022 to match personal allowance (£12,570)
• A Health and Social Care Levy will be introduced as a 1.25% National Insurance increase
• This will become a separate tax from April 2023 and National Insurance will go back down
• Dividend tax will also increase by 1.25% so that directors can’t avoid the Health and Social Care Levy
• The employment allowance increases to £5,000 for companies with more than one employee (this includes husband and wife businesses)

The Corporation Tax threshold in the UK for 2022/2023 is 19%, this will be increasing in April 2023 for profits over £50,000 and a marginal tax rate will be applied up to £250,000 (profits above this will be taxed at 25%).

Income Tax is paid on your PAYE salary (excluding dividends), the tax-free personal allowance for this year is £12,570.

The income tax bands are:
• Basic rate = £12,571 to £50,270 (20%)
• Higher rate = £50,271 to £150,000 (40%)
• Additional rate over = £150,000 (45%)

There are three National insurance thresholds that you need to be aware of when paying yourself as a business owner.

The Lower Earnings Limit (LEL) threshold is the level to qualify for state benefits e.g your pension. If you pay yourself above this level you will accrue state pension benefits without having to pay National Insurance.
• £123 per week
• £533 per month
• £6,396 per year

The National Insurance Primary Threshold is when employees of your Ltd company (including directors) start paying employees National Insurance.
• £190 per week (£242 from 6th July 2022)
• £823 per month (£1048 from 6th July 2022)
• £9,880 per year (£12,570 from 6th July 2022 to align with personal allowance)

The National Insurance Secondary Threshold is when your Ltd company (the employer) starts paying employers NI.
• £175 per week
• £758 per month
• £9,100 per year

The National Insurance Tax levels are:
• Employees NI = 13.25% up to £50,270 and 3.25% over £50,270
• Employers NI = 15.05% above the secondary threshold (no reduction over £50,270)
• Combined Employees + Employers NI taxation = 28.3%

Dividends explained...

Dividends are only payable from current or retained profits and are only payable to shareholders.

The dividend allowance for 2022/2023 is £2,000. Unused personal allowance can also be paid as tax free dividends e.g. if you pay a basic salary of £8,000 then £4,500 remains unused from your personal allowance - this can be drawn as tax free dividends.

The dividend rates for this year are:
• Basic rate = £14,571 to £50,270 (8.75%)
• Higher rate = £50,271 to £150,000 (33.75%)
• Additional rate over = £150,000 (39.35%)

In 2022/2023 you can earn £14,570 tax free (£12,570 personal allowance plus £2000 dividend allowance), however, do not pay yourself £12,500 as a salary due to the double National Insurance liability.

The optimal way to pay yourself is a salary that is just under the National Insurance secondary threshold and then pay the rest as dividends.

In the video, I will show you three different salaries:
1) The simplest sole directors salary (no NI to pay)
2) The most tax efficient sole directors salary (some NI to pay)
3) The best salary for multi director companies using the employment allowance

Dividends vs Salary
In some circumstances it can sometimes be more tax efficient to pay yourself a full PAYE salary instead of using dividends, however, it is usually more tax efficient to pay a basic salary and dividends to avoid the double National Insurance liability of employers and employees NI that PAYE creates.

How do you pay yourself as a director of a Ltd business in 2022/2023? Let us know in the comments below!

Видео How to Pay Yourself as a Ltd Company UK | Best Directors Salary 2022/2023 канала Honest Money