The Best Way to Pay Yourself From Your Limited Company: 23/24 edition

Kirsty Young Limited Company

As a small business owner, paying yourself in the most beneficial way from a tax point of view is crucial.

We are not talking about some crazy offshore tax avoidance scheme. This is just about setting the levels at which you pay yourself your salary at the most tax efficient points.

To be blunt, getting this wrong will cost you money.

So, here’s a short explanation of the one option, so you can pay yourself more and the tax man less! In this article, we presume you are a typical small business owner with a limited company, and therefore will be 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 a small salary and the rest in dividends (from the profit).

There are multiple reasons for paying yourself this way.

 

So, what is ‘the best’ level of salary for 22/23?

The answer to this question is very specific to your circumstances and goals. For the best answer you should seek bespoke advice based on your actual accounts and figures. However, in general, you will look to set the annual salary at either:

  • £9,100 per year

or

  • £12,570 per year

Mathematically, £12,570 is better this year in many situations. However, this depends on:

1) If you are unable to claim Employers Allowance

or

2) If you can claim Employers Allowance, and you have used all of it

As a result, you may have to hand over some Employers National Insurance at this level.

 

More salary = more hassle?

Generally, this higher salary payment option can become a practical pain for a minimal saving, as you will have to remember to make the payment of Employers National Insurance regularly. So, like many owners, you might choose to pay yourself the lower figure and take further dividends instead.

 

How much will I actually save in tax?

If you wanted to personally make £40,000 from your limited company, this would give you a total ‘effective tax rate’ of around 18% – 19%, presuming you had no other income. This would consist of the % of the total tax and National Insurance paid by the company and you on the money.

 

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 you can 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’d love a chat about how we can help.