How much salary should you be taking from your limited company?

Now we are a new tax year – 2016/17 – the year ended 5 April 2017, the amounts that you can take from your limited company tax efficiently have changed.

The first amount you need to know is – how much salary should you be taking from your limited company?

Here’s the simple rule of what to take up to the £43,000 higher rate of tax….

If you are a 1 person limited company – take £8,060 salary which is £671.66 per month and then £34,940 dividends

If you are a 2 person or more limited company (including if your spouse is the second person) – take £11,000 salary which is £916.67 per month and then £32,000 dividends.

The reason why you should pay more if you are a 2 person business is that the £406 additional Employers National Insurance charge that arises on the £11,000 is wiped out by claiming employment allowance. Most businesses will be able to claim this unless you’re a public body or business doing more than half your work in the public sector (eg local councils and NHS services) – unless you’re a charity.

The summary is that a 1 person business will save £1,612 of tax whilst the 2 person business will save £1,847 of tax as long as they claim the employment allowance. If you are a 2 person business and cannot claim employment allowance, you should pay yourself £8,060.

If you are interested in the calculation behind this, see below….

Russell Smith