Tax Tip - Week - 50 - Directors save money paying the right salary
A Director of a small Limited Company can save money by paying the right salary, and it only takes a few short steps to work out what salary to pay. There are some factors to take into account:-
- National Minimum Wage Legislation
- Working Tax Credits,Job Seekers Allowance and Other State Benefits
- Earnings from a previous job in the same tax year
- State Pension Entitlement
- Personal or Company Pension Contributions
- Personal Tax Allowance
- National Insurance Contributions
You can read further details in our
Directors Salary Section of the Knowledge base, and you could also use our Google Docs Remuneration Strategy Tool to make a comparison between different amounts of salary and dividends to see what affect it has on your net income.
For instance if the total gross income for a Director is £34,222 this can be taken as a combination of salary and dividends to achieve the maximum net income.
The table below gives an example of two salary choices with the respective increase in dividends.
So the Director has gained £1,160 by good tax planning, this difference is made up of £1,105 saved in PAYE Tax, £608 saved in Employees National Insurance, and £552 additional notional basic rate tax credit on the increased dividend.