Probably the most important post of the year for limited company directors!
If you’re looking for the 2017/18 optimal directors’ salary, check out this year’s post here. Otherwise for our 2016/17 article read on.
An owner managed limited company will usually pay their directors’ / shareholders’ with a small salary + dividends.
The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2016-17 is:
Upper limits for 2016-17
Salary – per annum: £8,040 (last year £8,040)
Salary – per month: £670 (last year £670)
Dividend – per annum: £34,960 (last year £30,891)
Dividend – per month: £2,913 (last year £2,574)
It should be noted that with the introduction of the dividend ordinary tax rate of 7.5% there will be a personal tax bill of £2,025 if dividends are paid all the way up to the maximum basic rate limit of £34,960 (yes, that’s a personal tax bill of up to £2,025 compared to £nil last year!).
For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employers N.I.) by up to £3,000 (last year £2,000).
In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,000 and slightly lower dividends of £32,000 (the overall tax saving between the director and the company being around £237 (last year £203)).
This second option will not be the best fit for everyone. This year, more that ever, personal circumstances must be carefully considered to give the best results.
Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.
Enjoy saving tax?