Optimum director’s salary for 2014/15

With the new tax year about to arrive it’s time for directors of small companies to review their salary/dividend mix to pay the least tax overall. In previous years this would have been very simple, the monthly salary would be set just below the point at which national insurance kicks in (the lower earnings limit), in 2013/14 this was £641 and in 2014/15 it increases to £663. However this year the calculation is a little more complicated due to the arrival of the £2,000 employers allowance. I’ve written about this allowance on the blog before here so I won’t repeat myself but this means that, assuming the company has no other employees paying national insurance, and the director has no other taxable income, the optimum directors salary become instead £10,000 a year or £833 a month. So to summarise –

• If your company has no other employees paying national insurance, and you have no other income then £833/mth is likely to be optimal
• If your company has other employees using up the £2,000 employers allowance or you have significant other income then £663/mth is a better bet
• If you’re somewhere in between you can either play it safe and go for £663 or speak to your accountant who will work it out for you….