How To Pay Yourself As a LIMITED COMPANY - Directors Salary - DIVIDENDS vs SALARY UK 2023/2024

Summary

In this informative video, the speaker discusses various strategies for limited company directors to optimize their take-home pay through salary and dividend combinations. Three scenarios are analyzed: paying a minimal salary with dividends for maximum income, combining salary with pension contributions for long-term benefits, and relying solely on salary, which yields lower returns due to higher taxes. The video emphasizes the importance of tax efficiency in financial planning for directors and encourages viewers to consider their lifestyle needs when determining their compensation strategy.

Takeaways

• 😀 Understanding corporation tax is crucial for limited company directors, with rates of 19% for small profits and up to 25% for larger profits.
• 💰 A suggested salary of £12,570 is tax-efficient, allowing access to personal allowances while minimizing tax liabilities.
• 📈 Contributions to pensions are highly tax-efficient, with annual limits of £60,000 that avoid corporation tax and employer NICs.
• 📊 Dividends are payable after corporation tax and can significantly increase take-home income if managed correctly.
• 📅 The personal allowance is currently £12,570 and will remain frozen until April 2028.
• 🚫 Earning over £100,000 reduces personal allowance eligibility, impacting take-home pay.
• 📉 Paying only a salary without dividends leads to significantly lower net income compared to a combined salary and dividends approach.
• 👥 Employees and business owners should consider their financial goals when deciding on salary and pension contributions.
• 📝 Keeping detailed records of allowable expenses, such as advertising and accountancy fees, can help reduce corporation tax liabilities.
• 🔍 If seeking to optimize income, balancing salary and dividends is essential for managing taxes effectively.

Q & A

What is the primary focus of the video?

The video focuses on how to pay oneself as a limited company director, exploring different salary and tax scenarios to maximize take-home pay.

What is the salary amount suggested for tax efficiency?

The speaker suggests a salary of £12,570 for tax efficiency, which allows for the maximum tax-free personal allowance.

How does paying a salary of £12,570 affect corporation tax?

Paying a salary of £12,570 reduces the corporation tax liability, saving the director approximately £750 compared to higher salary options.

What are the take-home pay figures for the three scenarios discussed?

In Scenario One, the take-home pay is £39,969; in Scenario Two, it is £49,521; and in Scenario Three, it is £34,650.

Why is Scenario Two advantageous for pension contributions?

Scenario Two is advantageous because it allows for a high take-home pay while contributing to a pension, which is tax-efficient but cannot be accessed until retirement.

What does the speaker recommend for those who want access to their earnings?

The speaker recommends Scenario One, where the director takes a salary and dividends, for those who want immediate access to their earnings.

What is the importance of considering employer's National Insurance (NI)?

Considering employer's NI is important because it impacts the overall cost of paying a salary and the net income the director receives.

What tax implications arise from taking only a salary?

Taking only a salary results in lower take-home pay due to higher personal tax liabilities and does not allow for the same tax efficiency as mixing salary with dividends.

What should viewers do if they have questions about their limited company?

Viewers are encouraged to ask questions in the comments, as the speaker offers to help with any inquiries related to managing a limited company.

What general advice does the speaker offer at the end of the video?

The speaker advises viewers to be thankful and seek joy, while also encouraging them to like and subscribe for more informative content.