It’s a question we see asked an awful lot by directors; ‘What salary level should I be using that is most beneficial’?
Firstly, we should point out that every situation is different and should be assessed individually and not en-masse, but a general guide for a director is to take their money out of their company via a mix of salary and dividends.
A director with no other income should look to pay themselves using the optimum salary level of £8,788, that’s £732.33 per month with any additional income paid out as dividends.
The reason we advise using this specific amount is due to National Insurance thresholds.
Lower Earnings Limit – for the 2020/2021 tax year if you earn over £6,240 it will count as a qualifying year for your state pension.
Secondary Earnings threshold – for the 2020/2021 tax year your employer will start to pay National Insurance once you earn above £8,788.
As you can see, we use the secondary earnings threshold as the amount we do not exceed, by doing this no national insurance is payable while still qualifying for the state pension without actually paying any contributions.
Remember, this does not mean you as a Company Director should automatically pay yourself at this level, our clients are advised on their own personal circumstances and for some this may mean using £8,788 for the 2020/2021 but for others it will be a different amount.