Director’s salary strategy for 2022/23
|We sat down with LHP Director and tax specialist Rachael Ball and discussed the benefits of a directors salary strategy for 2022/2023|
|There are two salaries we recommend for companies with only 1 director on payroll for this tax year, depending on a few deciding factors.|
For most clients, we suggest the directors salary of £9,100 because it avoids the admin of paying regular Employer’s National Insurance (NI) contributions in return for a small financial gain.
|If you’re willing to have the admin of making the extra payments, we might suggest the directors salary of £11,908. |
You’ll be liable for Employers NI of £422 on a salary of £11,908, however you will see a savings of £613 on Corporation Tax, leaving a gain of £191, reducing to £175 accounting for the tax you’ll pay on dividends.
In addition, you must pay the NI contributions during this tax year, but the saving isn’t made for another nine months after your business’ year end because that’s when Corporation tax is paid.
|As a result, our main recommendation is for directors take a salary of £9,100 for 2022/23 which avoids the burden of paying HMRC the PAYE and NI due on larger amounts.|
|If your company has two or more directors or employees on payroll, we’d recommend a different strategy.|
This is because companies with more directors qualify for employment allowance which means your employers’ NI liability is reduced by up to £5000 per year.
This means the optimum salary for a company with multiple directors is £11,908 per director, saving £422 NI contributions and a further £533 in Corporation Tax (compared to a salary of £9,100).
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