Director's Tax-Efficient Salary 2022/23

Let’s look at three scenarios to work out the most tax efficient options available to you depending on your circumstances:

Scenario 1

If you wish to pay National Insurance Contributions (NICs) or have an additional employee in the company.

You are paying yourself an annual salary of £12,570 and £37,700 per annum (£31,092 for Scottish taxpayers) in dividends.

The amount of personal tax & PAYE on this would be £3,213 per annum leaving you with a net annual take home pay of £47,057.

This equates to a monthly gross salary of £1,047.50 and monthly dividends of £3,141.67.

The main benefit is that if you have more than one employee, due to the employer’s allowance of £5,000, the overall savings will be £380 more than scenario 2.

Scenario 2

No National Insurance Contributions or the only employee in the company

You are on an annual salary of £9,880 (Apr 22 to Jun 22) and £12,570 (Jul 22 to Mar 23).

Further, you take annual dividends of £38,372.50 per annum.

The amount of personal tax & PAYE payable on this would be £3,545 per annum leaving you with a net annual take home pay of £46,725.

This equates to a monthly gross salary of £823.33 (Apr 22 to Jun 22), £1,047.50 (July 22 to Mar 23) and monthly dividends of £3,197.71.

In this scenario no Employee NICs will be due, but you will pay tax deductible Employer’s NICs of £421.02, because the threshold for employer’s contribution is £9,100 for the tax year. Despite this, your take home pay will be higher than paying yourself a salary of £9,100.

Scenario 3

You are on an annual salary of £12,570. and taking annual dividends of £37,700.00 per annum.

The amount of personal tax & PAYE payable on this would be £3,735 per annum leaving you with a net annual take home pay of £46,535.

This equates to a monthly gross salary of £1,047.50 and monthly dividends of £3,141.67.

The key benefit here is that you don’t have to change your payroll in July 2022, it would be the same throughout the year. However, this will result in an overall reduction of £43 in take home compared to Scenario 2.

The above scenarios are based on only taking dividends up to the basic rate threshold, any further dividends would be taxed at 33.75% or 39.35%.

*Note re: Child Benefit: The above scenarios assume that you are not receiving Child Benefit. If you are receiving Child Benefit, you will need to ensure that your total income does not exceed £50,000 or you may be subject to High Income Child Benefit Charge. You can reduce your dividends by £270 to avoid the charge.