How to Pay Yourself from a Limited Company UK | Best Way to Pay Yourself as a Director in 2024/2025

Discover the Best Way to Pay Yourself as a Director of a Limited Company for the Tax Year 2024/2025.

As a director of a limited company, determining the most tax-efficient salary for yourself is crucial. Let's delve into the recommended salary approved by accountants for this fiscal year.

Salaries exceeding this threshold face double taxation, subject to both employer's NI at 13.8% and employee's NI at 8%. Hence, diverting dividends above the primary threshold proves a wiser approach, as NI doesn't apply to dividends.

Income tax and NI thresholds remain unchanged this year. Frozen thresholds, combined with rising salaries, translate to increased tax revenues for the government.

Combining a basic salary with dividends typically emerges as the most tax-efficient remuneration method from a limited business. Basic salary usage maximises the tax-free personal allowance, while dividends offer a favourable tax regime compared to the conventional income tax and NI combo.

Nevertheless, individual circumstances may warrant a full PAYE salary. It's advisable to consult an accountant to ascertain the ideal director's salary for your limited business.

For the 2024/2025 fiscal year, income tax rates and thresholds are as follows:

- 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%)

On the other hand, dividend tax rates and thresholds for the same period are:

- Basic rate: £13,071 to £50,270 (8.75%)
- Higher rate: £50,271 to £125,140 (33.75%)
- Additional rate: £125,140+ (39.35%)

Key Facts About Dividends:

- Payable to shareholders from current or retained profits
- Can be disbursed monthly, quarterly, or annually
- Taxed via self-assessment
- Tax-free dividend allowance for 2024/2025: £500

National Insurance rates and thresholds for 2024/2025 include:

- Lower Earnings Limit (Pension Threshold): £6,396 per year
- Primary Threshold (Employees): £12,570 per year
- Employees Rate: 8% up to £50,270, 2% thereafter
- Secondary Threshold (Employers): £9,100 per year
- Employers NI: 13.8% above the secondary threshold

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 for 2024/2025:

- Recommended Salary: £12,570 per year / £1047.50 per month (Dividends for amounts above)
- Utilizes personal allowance fully
- Above LEL threshold for state pension eligibility
- Below primary threshold (no employee NI)

Corporation tax savings on allowable business expenses:

- Salary
- National Insurance
- Pensions

The costs below can be expensed if solely used for your business:

- Startup costs (can be claimed up to 7 years before the company starts trading)
- Health check and eye test expenses (if you use computer screens as a big part of your job)
- Business insurance expenses
- Advertising, marketing and PR expenses
- Accommodation expenses for business trips
- Bank charges
- Phone bills
- Equipment expenses including phones, computers and more.

Timecodes:

0:00 - Intro
1:25 - Income Tax
3:16 - National Insurance
8:40 - Corporation Tax
10:29 - Dividends
13:53 - My Recommended Salary
14:15 - Reasons for Recommended Salary

------------------------------------------
SCHEDULE A 1-2-1 COACHING CALL WITH ME
------------------------------------------
REGISTER A VIRTUAL OFFICE IN THE UK
------------------------------------------
MARGINAL RELIEF CALCULATOR
------------------------------------------
YOUTUBE VIDEO ON HOW TO REGISTER A COMPANY
------------------------------------------
SUBSCRIBE TO MY CHANNEL
------------------------------------------

I'll be releasing more Business, E-Commerce and Marketing related content. So if you found this video helpful and want to stay tuned with more videos then please subscribe to my channel so I can keep these videos coming!

Let me know if this has helped in the comments below!

[beardedoddity]

Excellent video buddy, i am just starting out on this path, lots of info and given across in an easy, digestible way. Thanks for taking the time to put this out there.

[MorganLambert-]

Cracking vid mate, looking forward to the one about expenses! Hope it's coming soon!

[rejointuk]

Great informative video. One tiny suggestion might add topping on the ice-cream. Sound is a bit echoie.

[Tanya]

This was fantastic. Thank you for explaining it in human terms!

[Jeffybonbon]

Good video thanks My Guess is the next video you do is about Dividend tax rates being the same as Income Tax rates with a Labour Govt its been too good for two long low salary high dividends I hope I am wrong if it happens its a 11% tax increase so even as a basic rate director your paying 40% tax as a higher rate tax payer it dosent bare thinking about and i bet there are pension changes on the way too

[alekseizaboronsky]

Fantastic video, super clearly explained and so helpful, thank you! Subscribed - looking forward to the video on tax deductible business expenses.

[robbiekerry]

Very useful. However, does auto enrollment for pensions apply to directors like other employees?I am not impressed with the expensive auto enrollment options available, hence have limited salary to £750pm to avoid employers NI and to avoid auto enrollment (company pays into a SIPP instead).

[xChikyx]

If i create a company in Uk, but I live in Costa Rica, no employees, only me, do I still have to pay insurance? I dont care about that or pension because I don't live there...

Also, I plan to create a company to be able to run kickstarters, which means I wont have a monthly income for the company. How do payments work that way? Can a company not pay the montly salary?

[mikeemike]

At 7:29 you state the 15 years pro rata payment as £116.49 per week. Should this not be £87.36? (£203.85/35 x 15)

[Jay_GT]

Hi, this is probably a stupid question (But rather stupid questions than stupid mistakes). Are the income tax numbers per month or per annum?

[vr]

I found your video to have great content! I'm starting as a freelancer with a £400 day rate. Could you please let me know if you have any videos or playlists that guide me through the process from setting up a limited company and bank account to PAYE setup?

P.S. I want to do this on my own and learn instead of hiring a CA.