Sole Director Optimal salary / dividend mix

In the Spring budget, the Chancellor increased the primary earnings limit for NI from 6 July 2022 to £12,570.

In 2022/23 this is the equivalent to £11,908 per annum as the limit is lower for the first part of the tax year.

If your annual salary exceeds this amount you, the employee will need to pay NI contributions.

From 2023/24 the limit is £12,570 per annum.


Why is this relevant to companies with one director?

As a sole director, if you have no other income sources, the optimum directors salary 2022/23 will increase to £11,908 per annum, (£992 per month or £229 per week). Any additional income should be paid as dividends.

Paying yourself this amount in 2022/23 will protect your state pension rights, ensure you do not pay employees NIC and reduce your company tax bill by 19% of the salary paid, ie: £2,262 saving.  There is no company tax deduction for dividends.  You can raise your salary to the full £12,570 from 2023/24.


Do I ever pay myself less?

Yes, if you have other sources of income that use up your personal allowance then the amount of salary would be reduced, potentially to £nil.

Other income can include another salary, rental income and pensions.


Should I ever pay myself more?

The aim is to use up your personal tax free allowance but keep under the NI limit.

Beyond £11,908 the dividend tax rate is significantly less than the equivalent NI and income tax cost, even after allowing for the corporation tax reduction.

To find out what is the optimal salary / dividend mix for you, please get in touch.

Disclaimer: The information in this article is for informational purposes only and should not be construed as legal or tax advice on any matter and does not create an accountant - client relationship.

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