The Best Way to Pay Yourself From Your Limited Company: 2024/2025 edition

Kirsty Young Limited Company, News, Tax

When you own a small business, it is crucial to know how to pay yourself in the most beneficial way from a tax point of view. To be honest, get this wrong and it will cost you money!

Paying yourself tax efficiently is about setting the levels at which you pay yourself your salary at the most tax efficient points. Here is our short guide to one option where you can pay yourself more and the tax office less!

In this example, we presume you are a typical small business owner with a limited company AND you are both a shareholder and a director.

 

The basics

For many small business owners, ‘the best’ way to take money from your limited company will be a combination of :

  1. a small salary, plus
  2. the rest in dividends (from the profit).

There are many good reasons for paying yourself this way.

 

So, what is ‘the best’ level of salary for 24/25?

The answer to this question is very specific to your individual circumstances and business goals. You should seek specific advice from your accountant or other business financial specialist based on your actual accounts and figures.

As with many small business owners, when your business is your only source of income, you will generally look to set the annual salary at either:

  • £9,100 per year

or

  • £12,570 per year

 

Doing the math(s)

Mathematically, £12,570 is better this year in many situations, BUT it depends on many other factors including:

  1. Any other income you might have
  2. If you can claim Employment Allowance, and if you have used all of it
  3. Whether you want the hassle of having to pay over small amounts of tax in some months (more on this below).

As a result, you may have to also pay Employer’s National Insurance at this level.

 

More salary = more hassle?

Generally, the higher salary payment option can become a practical pain for a small additional saving. You will need to remember to make the payment of Employers National Insurance on some months, and time is money…

Like many other UK small business owners, you might therefore choose to pay yourself the lower figure and take further dividends instead.

 

How much will I actually save in tax?

Again, it depends. As paid salary is usually deductible from your company’s profits, the saving on the salaried amount itself is 19% – 25%. This depends on your level of profits. So if you paid yourself £12,570, you’d usually save about £2380 – £3140 in corporation tax.

In addition, you still have to consider the personal tax consequences. The good news is that if the company ‘pay’ is your only income, then there will not be any personal tax at this level. This is because most owners will have a tax-free allowance that is equal to (or exceeds) the amount of pay.

 

I’m still confused about how to pay myself

Ask your accountant first as they will have access to all your accounts and can advise you on what tax savings you could actually achieve.

If you don’t have an accountant, or feel you aren’t making the most of the opportunities of a salary/dividend mix with your current accountant, we can help.