Director’s Remuneration Strategy

As part of many tax efficient remuneration strategies, director’s salaries are generally aligned with either the national insurance primary threshold or the personal allowance.

A key national insurance change announced in the autumn budget will see the employers secondary threshold being reduced from £9,100 to £5,000.

If you’re the only director in your company, you have several options to consider, all of which would result in no income tax liability:

Option 1 – £5,000 Annual Salary (£416.66 monthly) this would then mean:

• There would be no Employer’s NI contributions required
• That this would not count as a qualifying period for State Pension purposes
• This would maximise funds available for dividends
• Some corporation tax relief would be available on salary

Option 2 – £6,500 Annual salary (£541.66 per month) means:

• This would give you one year towards qualifying for State Pension purposes
• There will be a liability to Employers NIC of £225 per annum; however, if there is more than one eligible employee on the payroll then Employment Allowance would be claimed
• Corporation tax savings outweigh NI cost
• However some personal allowance left behind.

Option 3 – £12,570 Annual Salary (£1,047.50 per month) means:

• Utilise full personal allowance for income tax purposes
• One year towards qualifying for State Pension purposes
• Maximises corporation tax deduction
• However higher employers NIC costs (£1,135.50 annually)

For those Directors already aligned with the personal allowance, salaries will remain at £12,570 per annum, £1,047.50 per month or £241.73 per week.

For those directors who have previously been in receipt of £9,100 (£758.33 per month or £175.00 per week), in most cases it would be more tax efficient to increase your salary to £12,570 (£1,047.50 per month or £241.73 per week). This may however impact on the value of dividends that you can pay and is not the optimal position for those directors earning £100,000 or more.

For R&D intensive businesses it may be appropriate to pay additional salary over and above option three in order to maximise R&D tax credit claims. This should be discussed with your Clive Owen LLP relationship partner.

If you require a change in salary then please advise us before 6th April 2025.

Should you have any queries please do not hesitate to contact your Relationship Partner.