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!

[nicolasbenson]

I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or when ever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income

[simplydividends]

Some examples would have been helpful. Comparing 50k standard salary against 50k through low salary, dividends and corporation tax

[ismellofmusk]

Can you do some examples of how it looks at say. 50k Dividends. 75k. 100k and £125k maybe £150k

[lxpkosd]

The real answer is - it depends on your circumstances.
For example - I pay myself, my wife and my daughter £750 a month - all of which goes into the "family pot" from which all the household bills are paid.
This means we pay no tax or NI - but gain NI credits. We also claim our mileage which gives us all up to an additional £4500 a year tax free.
All profit from the company is paid into our pensions - hence no corporation tax.
Clearly, this setup wot't last forever - but at present it really suits us. It's also going to set my daughter up with a strong pension pot at the start of her working life.

[shaunjohnuk]

Yes, we need some examples on various salary's from low to high

[joshanthony]

found this really easy to follow and understand. In the process of setting up a limited and most of the info our there is very confusing and quite daunting to say this least. Your video has given me a calmer piece of mind about doing it and now feel more comfortable when tackling the finances. It would be great if you could do an updated dividend video just incase anything has changed (watched your 2021 to get an idea of how it works!)

[CabinetFramingUK]

Well done. This is the real valuable info we subscribed for. Smart business guys end up showing their accountants a thing or two most times 👍

[michaels]

Perhaps do a video on setting up a registered charity as a subsidiary of your company, far more tax efficient and pay less tax in corporation tax.

[MrGazzy]

Love these videos! Great to see you back making this content. The fact they keep lowering the dividend allowance really grinds my gears. Do you think they'll eventually wipe the tax-free dividend allowance completely?

[winjustin]

Thank you for making this video. Thank you also for showing the workings behind your figures. As others have mentioned, it would be of help if examples were included using different dividend levels. However, that is a fairly easy calcualation to do.

[marcusc]

Just started as a ltd company, this is so helpful. Cheers!

[DanielHarrisCodes]

Can’t believe how much we’ve seen the dividend allowance fall over the years, easier than targeting the big companies though I suppose

[MoneySuccesswithAndy]

That was really well explained, super clear excellent video. Thank you for posting.

[hairobinson]

I was looking forward for this video especially just after the budget .. Thank you as always

[aspireconsultingandtrainin]

Fantastic and simple explanation, that not even my Accountant was able to explain to me on this in the way that you have!

[JD-mwob]

Thank you. It would be good to hear a similar video but for those circumstances where an individual runs a Ltd Company where they are retired and drawing a pension or where they work along side their Ltd Co in another paid job outside the company . ? Bw

[jordonleesmith]

Could you expand on this video to explain how this works when you still have a 9-5 salary + a director earning income from a Ltd. Surely my personal allowance would be used up already from the 9-5 salary, so would it be better to pay myself all earnings from the Ltd as a dividend and have no salary from the Ltd at all?

[Shamele]

Clear as mud. Would be more interesting to see actual examples at different earnings

[Jonay]

Don't forget the Scottish income tax rates are different (not that it will make much difference to the outcome of this... but worth at least adding in... or at least highlighting that the income tax rates listed are for England/Wales/N.Ireland only)

[davidcollier]

Thanks for posting another great video.