How to Pay Yourself as a Ltd Company – Directors Salary 2021/2022 – Dividends vs Salary UK
Monday, March 8th, 2021 in: Tax tips
How to Pay Yourself a Directors Salary in 2021/2022
NI thresholds for salary 2021/22
Let’s first look at the 3 the NI thresholds to understand what the most tax efficient salary is for 2021/22.
Lower Earnings Limit – as long as you pay a salary above this you are protecting your entitlement to future state pension and benefits, without paying any national insurance.
For 21/22 this is £520 per month, £6,240 for the year Primary Threshold – if you earn above this you personally have to start paying national insurance
– for 21/22 this is £797 per month, £9,568 for the year Secondary Threshold – if you earn above this your business has to start paying national insurance – for 21/22 this is £736 per month, £8,840 for the year The Secondary
Threshold is lower than the Primary Threshold – this means that the optimum level for the purposes of this article is to go up to the Secondary Threshold.
Directors Salary 2021/2022
We would recommend a monthly gross salary of £735/736 to avoid national insurance deductions. £735 x 12 = £8820 (or £8832).
Dividends to avoid higher rate tax
With regards to dividends, if you intend to draw dividends up to the higher tax band but no further, then this would leave you with £41,450 of dividend headroom (£50,270 higher tax band – £8,820 salary). The personal tax on dividends of £41,450 would total £2,678 – this is calculated as below: £3,750 of the dividends are in the tax free personal allowance (£12,570 less £8,820 salary) £2,000 of the dividends are in the tax free dividend allowance This then leaves the balance of dividends totalling £35,700 to be taxed at 7.5% = £2,678
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