Most tax efficient annual salary for directors for 15/16

The 2015/16 tax year is coming to an end and for directors who also own their companies it’s time to review their salary to bring it into line with the changes to the personal allowances. I did a post on this topic last year so won’t repeat myself but basically the most tax efficient annual salary for 15/16 for owner/directors increases from £10,000 to £10,600 to reflect the increase in the tax free personal allowance . This assumes they don’t have any other taxable income and take the bulk of their remuneration as dividends. It also means that they will pay a small amount of employee national insurance at the end of the year (£305) but this cost is outweighed by the additional corporation tax savings.

If you don’t want the bother of having to pay any national insurance then the figure is reduced to £8,060 which is the upper limit before national insurance starts to be charged. Paying the lower figure does mean a slightly lower overall corporation tax saving for the company of £1,612 (£8,060 at 20%) instead of £2,120 (£10,600 at 20%) or a difference of £508. Therefore after taking into account the additional national insurance overall there is tax saving of £203 per director at the higher salary (£508-£305).