{"id":7442,"date":"2020-03-28T11:45:49","date_gmt":"2020-03-28T11:45:49","guid":{"rendered":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/?p=7442"},"modified":"2024-11-08T12:49:50","modified_gmt":"2024-11-08T12:49:50","slug":"pay-yourself-through-limited-company","status":"publish","type":"post","link":"https:\/\/www.qualitycompanyformations.co.uk\/blog\/pay-yourself-through-limited-company\/","title":{"rendered":"How to pay yourself through a limited company"},"content":{"rendered":"
\n Last updated: 8 Nov 2024<\/strong>\n <\/div>\n \n

You must adhere to certain rules and restrictions when you pay yourself through a limited company. Your company is a legal \u2018person\u2019 in its own right, which means that it\u2019s financially independent of its directors and shareholders. Consequently, you cannot use company funds as your own unless you pay yourself through appropriate means. Until then, any money that your company receives belongs to the business, not you.<\/p>\n

The most tax-efficient and widely used form of remuneration is a combination of a director\u2019s salary and dividend payments. This strategy is possible if you are both a director and shareholder of your company, which is commonplace in most small firms.<\/p>\n

Directors are classed as employees for tax purposes, whilst shareholders are classed as investors. This means that any person who is a director and shareholder of their own limited company can pay themselves a regular director\u2019s salary and then top up their income with dividend payments from shares.<\/p>\n

We discuss this in more detail below, so you should have a basic understanding of your options by the end of the post. That being said, we always recommend seeking professional advice from an accountant.<\/p>\n

Paying yourself a director\u2019s salary<\/h3>\n

Just like employees’ wages, your director’s salary is a tax-deductible business expense. This means that your salary is paid before accounting for Corporation Tax on company profits, so your company won’t be liable to tax on whatever amount you take.<\/p>\n

To pay yourself a director\u2019s salary, you will need to register your company as an employer<\/u><\/a> and operate PAYE (Pay As You Earn) as part of your payroll. You can take your annual salary through PAYE at regular intervals, such as weekly, fortnightly, or monthly.<\/p>\n

You won’t pay any tax or Class 1 employee National Insurance contributions<\/a> (NIC) on the part of your salary that falls within your tax-free Personal Allowance (\u00a312,570 for 2024\/25).<\/p>\n

If you earn more than that, the company will deduct Income Tax and National Insurance from your earnings, which HMRC will collect through PAYE. The company will also pay Class 1 employer’s National Insurance on your salary earnings above the current NIC Secondary Threshold of \u00a39,100 per year.<\/p>\n

To pay yourself through a limited company in the most tax-efficient manner, you may wish to consider one of the following three director’s salary options.<\/p>\n

1. A salary of \u00a312,570 per year<\/h4>\n

Some directors choose to take a salary up to the National Insurance Primary Threshold. This is \u00a312,570 for the 2024\/25 tax year – the same as the Personal Allowance.<\/p>\n

You won’t have to pay any Income Tax or employee NIC on your salary. However, the company will have a small amount of employer’s National Insurance to pay on the portion of salary income between \u00a39,100 and \u00a312,570.<\/p>\n

2. A salary of \u00a39,100 per year<\/h4>\n

Another popular option is to take a salary up to the Secondary Threshold of \u00a39,100, which results in no Income Tax, employee NIC, or employer’s NIC deductions.<\/p>\n

With this level of salary, you’ll still receive National Insurance credits<\/a> even without paying any NIC. This means that your access to contributory benefits will be protected.<\/p>\n

3. A salary of \u00a36,396 per year<\/h4>\n

This is the smallest salary you can pay yourself and still receive National Insurance credits without actually paying NIC. You won’t pay any Income Tax either, nor will the company be required to pay employer’s NIC<\/p>\n

If you take a salary of less than \u00a36,396, which is the NIC Lower Earnings Limit for 2024\/25, you’ll need to make voluntary Class 3 National Insurance contributions<\/a> to get access to contributory benefits, including the State Pension. The current rate of Class 3 NIC is \u00a317.45 per week.<\/p>\n

Paying Income Tax and National Insurance on a director\u2019s salary<\/h4>\n

If you live in England, Wales, or Northern Ireland, you will pay the following rates of Income Tax<\/u><\/a> on your director\u2019s salary in the 2024\/25 tax year:<\/p>\n