Optimal Director’s salary for 17/18

It’s the start of the new tax year so time for company directors to review their annual salary. This year, assuming you are the sole director and therefore not entitled to the Employers Allowance, I’d recommend a figure of £680/month or £8,160 a year. This is just below the point at which you start having to pay national insurance, (the primary threshold) but is sufficient to ensure you receive a full credit for the state pension (the lower earnings limit).

The remainder of your remuneration package will then be in the form of dividends most of which will be subject to tax at 7.5 % up to the basic rate threshold of £45,000. However you will get the first £8,340 tax free, as you have £11,500-£8,160 still to use of your personal tax free allowance plus the £5,000 dividend allowance. So as an example someone taking £45,000 out of their company this year will result in a personal tax liability of just over £2,000. The calculation looks like this –

Salary          £8,160

Dividends  £36,840

Total           £45,000

First £11,500 covered by personal allowance

Next £5,000 covered by dividend allowance

Remaining £28,500 tax at 7.5% = £2,137.50