Director’s Salary 2024/25: The Best Salary and Dividend Strategy

director's salary 2024/25

Are you a company director wondering how to structure your salary for maximum tax efficiency in 2024/25? This guide is for you! We’ll explore the best salary and dividend options for the 2024/25 tax year, so you can keep more of your hard-earned money.

Understanding Salary and Dividends:

  • Salary: This is your regular pay from the company, which is considered an employment expense. It’s subject to both income tax and National Insurance contributions for you and the company (up to a certain point).
  • Dividends: These are payments made from your company’s profits after corporation tax has been paid. They have separate tax rates and generally aren’t subject to National Insurance contributions, making them potentially more tax-efficient.

The Case for Combining Salary and Dividends

  • Maximising Tax Efficiency: A strategic mix of salary and dividends can help you minimise your overall tax liability. You can often optimise your tax situation by taking a small salary and supplementing your income with dividends.
  • Balancing Financial Needs: A salary provides a consistent income stream and contributes to your State Pension entitlement. Dividends, on the other hand, allow you to access company profits in a more flexible way.

Salary Options: Finding the Right Fit

Here are two common tax-efficient salary choices for directors (keep in mind, these assume income is solely from salary and dividends):

Option 1: Paying No National Insurance

Salary: £758.33 per month (£9,100 annually)

Benefits:

  • Qualifies for State Pension contributions.
  • Reduces corporation tax for your company.
  • No monthly payments to HMRC for you or the company (on National Insurance).

Best For: Directors valuing simplicity, predictable income, and avoiding frequent HMRC payments.

Option 2: Optimising Personal Allowance & Overall Tax

Salary: £1,047.50 per month (£12,570 annually)

Benefits:

  • Most tax-efficient option overall (despite some company National Insurance).
  • Reduces corporation tax for your company.
  • Qualifies for State Pension contributions.

Best For: Directors comfortable with HMRC payments and focused on maximising overall tax savings.

Crucial Factors to Consider:

  • Other Income Sources: Any additional income (rental income, investments, etc.) can impact how you structure your salary and dividends for the best outcome.
  • Dividend Tax Rates: Dividends are taxed, albeit at potentially lower rates than regular income. Calculate your projected dividend income to determine your total tax position.
  • Professional Guidance: Don’t underestimate the complexity of tax rules – an accountant can provide invaluable, personalised advice.

Expanding Your Options: Optimising Your Director’s Salary 2024/25

For a truly optimised financial strategy, consider these additional income approaches:

  • Company Pension Contributions: Reduce your corporation tax bill and bolster your retirement savings.
  • Benefits in Kind: Some benefits (e.g., company car, health insurance) can be more tax-efficient than taking a larger salary.

Yorkshire Accountancy is Here to Help!

Are you confused about the best way to structure your income? Contact us for a comprehensive consultation. We’ll analyse your situation and create a strategy that puts more money in your pocket.

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