Company Director Salary: How Much Should I Take From My Limited Company

Many self-employed individuals choose to start a limited company. It is often the natural progression for a person’s career. However, this shift often leads to more complicated financial decisions – one of which is the company director salary. As a business owner, you know you have to pay your employees a salary, but what about you?

Newnham & Son has extensive experience setting up limited companies for individuals. As a result, we know everything there is to know about paying both employees and directors. Here’s a guide to help you decide how much you should take as a salary from your limited company. 

Reasons to Take a Salary

Your company director salary is an allowable business expense. By taking it, you will lower the amount of corporation tax you pay in the long run. Another benefit of taking a director salary in the UK is that, if it is above the lower earnings limit, you’ll gain qualifying years towards your pension. 

company director salary

Director Salary: Should It Be High or Low?

While the benefits of taking a director salary in the UK are clear, how do you determine the amount? Here is some information on both low and high company director salaries:

Taking a High Salary

By taking a higher salary, you will enjoy increased maternity benefits which you only qualify for if you are employed. Additionally, you will not receive the same amount of cover under critical illness, permanent health, and personal accident which are all calculated based on a person’s earnings. With a higher salary, you will, of course, have more disposable income. You’ll also save on corporation tax. That said, you may not qualify for your yearly tax-free allowance. 

Taking a Low Salary

In 2019, you can earn up to £12,500 completely tax-free. National Insurance Contributions(NICs) are, however, paid at a lower threshold. That said, you don’t have to pay NICs if your salary is higher than the NIC Primary Threshold of £8,632 but lower than the NIC Lower Earnings Limit of £6,136. 

Luckily, if you hold a position within a company. National Minimum Wage Regulations don’t apply unless you have an employment contract. As a result, a lower salary allows you to avoid paying tax and NICs legally while also benefiting from a state pension. 

Get Advice From Your Local Accountant

The key to choosing the right company director salary in the UK is to work with a local accountant. Aside from helping you choose your salary, they can tell you everything you need to know about income tax and NICs. At N&S, we have extensive experience working with limited companies. Moreover, we can help you pay yourself in dividends which can be a more tax-efficient way of taking money from your company. 

To find out more about our business services and how we can help you, contact our friendly team today. 

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