How much salary should you be taking from your limited company?
Author: Russell SmithApril 25, 2016
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….
|Corporation Tax saving – 20%||2200||1612||588|
|Corporation Tax saving on NI ER||81||81|
|Corporation tax saving||1875||1612||263|
|Cash paid from the company||43000||43000||0|
|Cash in pocket||42647||43000||-353|
|Employment allowance claimed||325||325|