Here are the key points about the most tax-efficient way for a company director to pay themselves in the UK for the 2024/25 tax year.
- Optimal Approach: The most tax-efficient method generally combines salary and dividends.
- For Companies with One Director/Employee:
- Salary: £12,570 per year (£1,047.50 per month). This matches the Personal Tax Allowance, so no income tax is due.
- Some Employer’s National Insurance (NI) is payable (£478.86), but this is offset by increased corporation tax savings.
- Alternative Salary: £9,100 per year. Avoids all NI contributions but is slightly less tax-efficient overall.
- For Companies with More than One Employee/Director: Salary: £12,570 per year. This is eligible for the Employment Allowance, eliminating the Employer’s NI contribution.
- Dividends:
- Tax-Free Allowance: £500 for 2024/25.
- Tax Rates: 8.75% within the basic rate band. 33.75% in the higher rate band.
- Dividends are generally taxed at lower rates than salary, making them a more tax-efficient option for additional income.
- Tailoring the Mix: The exact combination of salary and dividends should be tailored to individual circumstances, taking into account other income sources and company profitability.
- Consult an Accountant: It’s advisable to consult with an accountant to determine the best strategy for your specific situation.