Optimum salary levels for company owners from april 2021
Every tax year the National Insurance and tax thresholds change, and we think carefully about the most tax efficient salary levels to recommend to company Directors.
With a new tax year almost upon us, the government have announced the NIC thresholds that will apply from April 2020 onwards, as follows:
| Pay Frequency | LEL | PT | ST | UEL |
| Weekly | £120 | £184 | £170 | £967 |
| Monthly | £520 | £797 | £737 | £4,189 |
| Yearly | £6,240 | £9,568 | £8,840 | £50,270 |
For those not well versed in National Insurance acronyms, the above headings can be deciphered as follows:
| Acronym | Acronym Name | What it means! |
| LEL | Lower Earnings Limit | Above this level earnings count for state pension etc |
| PT | Primary Threshold | Above this level Employees NIC kicks in @ 12% |
| ST | Secondary Threshold | Above this level Employers NIC kinks in @ 13.8% |
| UEL | Upper Earnings Limit | Above this level Employees NIC reduces to 2% |
The above thresholds have all risen slightly over the current 2020/21 levels.
What about tax? The personal allowance increases slightly from £12,500 to £12,570 from April 2021, while the higher rate tax threshold increases from £50,000 to £50,270.
So, what is the optimum salary level for you? The answer depends on a couple of factors, but can be broadly summarised as follows:
| Salary level | Who for? | Why? |
| £9,568 | If Director is only employee OR if £4k employment allowance fully used against other staff | Above £8,840 19% Corporation Tax saving vs 13.8% Employers NIC cost yields overall saving but above £9,568 triggers 25.8% NIC |
| £12,570 | If other employees but balance of employment allowance left | Since no Employers NIC to pay, 12% Employees NIC cost is outweighed by 19% Corporation Tax saving |
| £8,840 | If other income >£3k pa (eg. buy to let property) | Salary above this would be taxed at 20% so incurring NIC as well would outweigh Corporation Tax saving |
We’ll be in touch further soon with our recommendations for each client, but in the meantime, for further advice on this matter, please contact your Client Manager, or one of our payroll team.
Key Facts
- Employees NIC threshold rises from £9,500 pa to £9,568 pa from 6 April 2021
- Employers NIC threshold rises from £8,788 pa to £8,840 pa from 6 April 2021
- The tax-free personal allowance increases to £12,570; the higher rate threshold to £50,270
- Our recommended optimum salary for one person company Directors will be £9,568 pa
- Where more than one Director/employee it will often be £12,570 pa, but not always
For further advice on this matter, please contact me.
Related Posts
Cash ISA allowance will be reduced from £20k to £12k from April 2027
n a bid to encourage more people to save into stocks and shares, the current £20k per annum allowance for investing in ISA will be restricted to £12k per annum for investment into a cash ISA.
Mansion tax for homes worth over £2M from April 2028
As expected, a new High Value Council Tax Surcharge was announced which will kick in from April 2028 and apply to homes worth over £2m.
100% CGT relief for shares sold to employee ownership trust halved
Under current rules, if you sell more than 51% ownership of your business to an Employee Ownership Trust then there is a 100% relief, and no Capital Gains Tax has to be paid on the sale.
Permanent rates reduction for hospitality, retail and leisure
Two new, lower, multipliers will be introduced for these sectors from April 2026, in a bid to permanently reduce business rates for affected businesses.
NIC to apply to salary sacrifice pension arrangements from April 2029
As widely anticipated in the lead up the Budget, it was today announced that NIC will apply to pension contributions from April 2029, but only insofar as there will no longer be an NIC saving for employees and employers that sacrifice more than £2k pa of their salary to pay into a pension.
Mileage based electric/hybrid vehicle excise duty from April 2028
It was today announced that the government are introducing a new Electric Vehicle Excise Duty (eVED) from April 2028 which will impose a charge of 3p per mile.
100% first year allowance for new electric cars extended to March 2027
The Budget documents confirm that the current 100% capital allowance that applies to the purchase of new electric vehicles and charge points will be extended for a further year until 31 March 2027.
New first-year allowance of 40% for main rate assets from January 2026
It was also announced today that the government will introduce a new 40% first-year allowance for the purchase of main rate assets, to encourage investment, although this does not include the purchase of cars or second-hand assets.
Main rate writing down allowance reduced from 18% to 14%
Currently, assets which are not eligible for the Annual Investment Allowance or First Year Allowances, including hybrid cars, and second-hand electric cars, are subject to the main rate writing down allowance of 18% per annum.
£1M inheritance tax relief for business/agricultural assets will transfer
The Labour government announced last year that the current 100% Inheritance Tax relief for shares and other business/agricultural assets will be restricted to £1m from April 2026 and, unlike other Inheritance Tax allowances, it would not transfer between spouses.