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

Author: Russell Smith
April 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….

 

16/17 16/17
Salary 11000 8060
Dividends 32000 34940
43000 43000
Corporation Tax saving – 20% 2200 1612 588
NI ER -406 0 -406
Corporation Tax saving on NI ER 81   81
 
Corporation tax saving 1875 1612 263
 
Cash paid from the company 43000 43000 0
NI EE -353 0 -353
Cash in pocket 42647 43000 -353
 
Overall effect 1523 1612 -89
 
Employment allowance claimed 325   325
 
Overall effect 1847 1612 235

 

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