The Most Tax Efficient Salary for Limited Company Directors in 2022/23
What is the most tax efficient limited company salary for 2022/23?
As a director or employee of a limited company you will be liable to national insurance on the salary you take, the company itself will also be liable to pay national insurance on the same salary. This double national insurance charge usually makes it tax inefficient to take a high salary.
The most tax efficient salary for directors is £11,908 even where the Employment Allowance is unavailable, this is because the additional salary is tax deductible, saving Corporation tax at 19%, although it is subject to National Insurance at 15.05%.
For those claiming the Employment Allowance there will be no NI due to HMRC, for sole directors there will be NI due as such a lower salary may be preferred, although the higher salary level remains more tax efficient.
If you do not wish to have to make payments to HMRC the lower salary of £9,100 is the optimum amount. Below I’ve covered the details behind arriving at the optimum salary amounts, you don’t need to keep reading unless you really want to.
There are a number of tax free thresholds that apply for national insurance purposes, usually a salary around these levels are recommended with any extra income being taken as a dividend.
Employee’s National Insurance is charged at 13.25% of amounts over the Primary Threshold but under the Upper earnings limit. Employer’s National Insurance is 15.05% on amounts over the Secondary Threshold.
As an employer with more than one individual on the payroll you should qualify for the employment allowance which provides relief for up to £5,000 of Employer’s National Insurance liability.
A salary is additional income and is also subject to Income Tax. Where it falls within your £12,570 Personal Allowance this is taxed at 0%, if it falls within your basic rate band it’s taxed at 20%. If you would like to discuss this in more detail please contact firstname.lastname@example.org