You are a Director of your own company and we suggest to be tax efficient you should be an employee of your own Limited Company. Employers and Employees both pay National Insurance Contributions (NICs) on salary payments, but not on dividends, so it makes sense to pay yourself a smaller salary and make up for it with dividend payments.

Due to being “office holders” you do not need to comply with the minimum wage rule. So, the burning question is how much should you pay yourself from your own Company? This is purely a balancing act in order to be as tax efficient as possible.

In order to get it right we need to look at how many people there are in the business, tax allowances for dividends, tax relief for Employee salaries, and even the benefits of making qualifying payments for the State Pension.

So there we have it! Read on to find out the best way to pay yourself.

Your Personal Allowance is the amount you are allowed to earn before you have to start paying income tax.

In 2022/23, the Personal Allowance is £12,570.

You only pay tax on the part of your income that is above the Personal Allowance threshold. For instance, if you earn £16,000 in a year, you’ll only pay income tax on £3,430.

£16,000 (salary) – £12,570 (tax free Personal Allowance) = £3,430. The amount subject to income tax is £3,430.

The Corporation tax that a limited company is subject to is paid on the profits of the business. As salaries are a direct expense to the company, putting yourself on the payroll will reduce your profits, thereby reducing your Corporation Tax.