What is the optimum level for directors salaries for 2024/25?
Keith Witchell
Every tax year the National Insurance and tax thresholds change, and clients ask us what level of salary they should pay themselves from their companies?
However, this year is different, as the Employee NIC threshold remains aligned with the tax-free personal allowance, both of which remain frozen at £12,570.
The rate of Employees NIC has reduced for salaries over £12,570 from April 2024, to 8% from 10% (previously 12% until January 2024), but for those Directors wishing to be paid at the threshold level, this won’t have any impact.
So, what is the optimum salary level for you? In almost all cases the answer to that question is still £12,570 per annum. This means that your gross and net salary will be £12,570 per annum (£1,047.50 per month).
The reason we are recommending £12,570 per annum, is that this is both the tax-free personal allowance, and the employees NIC threshold for the 2024/25 tax year, just as it was in the 2023/24 tax year.
This level of salary will incur some employers National Insurance because the secondary threshold above which that kicks in is £9,100 per annum. The rate of employers NIC for salary over £9,100 per annum remains at 13.8%, which means that if you pay yourself a salary of £12,570, the employers NIC for the year for the company to pay will be £478.86. This is also unchanged from the 2023/24 tax year.
However, with Corporation Tax being at least 19% (and in many cases as high as 26.5% where annual company profits are between £50,000 and £250,000) we advise paying the salary of £12,570 as the Corporation Tax saving of the salary over and above £9,100 comfortably exceeds the employers NIC cost.
Furthermore, all companies with at least two people on the payroll earning at or over the NIC threshold receive the Employment Allowance which covers the first £5,000 of employers NIC per annum. For smaller businesses this is likely to cover the NIC owed on your salary, meaning no NIC to pay.
For businesses that are already fully utilising the Employment Allowance against the employers NIC for their employees, we still advise paying the £12,570 salary, due to the Corporation Tax saving exceeding the employers NIC cost, as set out above.
Are there any exceptions to the optimum salary level of £12,570? Yes, but these are rare. In fact, pretty much the only time we would recommend a lower salary for a business owner, is where the company is making less than £50k per annum profit, you are the sole employee on the payroll, and you have other sources of income that utilise part/all of your tax-free personal allowance. Or if the company is loss making, or has profits under £9k per annum. In these cases we would recommend a salary of £9,100 per annum.
Key Facts
- Employees NIC threshold remains aligned with tax-free personal allowance @ £12,570 pa
- As a result £12,570 is still the optimum salary amount from April 2024 for most of our clients
- Employers NIC kicks in @ £9,100 pa, but may be covered by the Employment Allowance
- Even where the employers NIC is payable, the Corporation Tax saving should be higher
- The optimum salary for those with other sources of income and low profit companies is £9,100 pa
For further advice on this matter, please contact your Client Manager or one of our payroll team.
Companies house announce new filing fees from 1 May 2024
Keith Witchell
Companies House have recently carried out a review of their filing charges, based upon which they are going to increase the annual Confirmation Statement filing fees.
For most limited companies, the amounts payable to Companies House each year are very straightforward, with just an annual fee for filing their Confirmation Statement, which is currently set at £13.
For the vast majority of our limited company clients, we help with the preparation and filing of the Confirmation Statement, and we pay this fee on your behalf, as we cover it in the fees you pay us.
However, from 1 May 2024, the Companies House filing fee will increase from £13 to £34, an increase of £21 per annum, which we will need to pass on to our clients.
There are also changes to other Companies House fees, such as incorporation fees for new companies, name change fees etc, and we will therefore also have to revise the fees we charge for these ad hoc services. Similarly, each time there is a change in shareholdings, we have to file an additional Confirmation Statement, and our charges for making such changes will also need to increase to cover the higher filing fee payable to Companies House on your behalf.
Alongside the changes to filing fees, Companies House also now have new powers based on the Economic Crime and Corporate Transparency Act 2023 which came into effect on 4 March 2024. Under the act there is now a requirement for every company to supply a registered email address to Companies House, which they will use to send official notices. This email address will not appear on the public record, but must be carefully monitored, to ensure that notices are read and actioned.
Where we provide Company Secretarial services for clients already, we believe the best way to address this new requirement is for us to provide a registered email address to Companies House which we will monitor on your behalf.
We are therefore having to implement an increase of £4+VAT per month to the fees of all limited company clients that we provide Company Secretarial services to, which will cover both the increased annual Confirmation Statement filing fee, and the cost of us maintaining the registered email address on your behalf.
So, please keep your eyes peeled for a notification from Ignition (our client engagement and payment platform) or your Client Manager of this change to your monthly fees from May onwards.
Please also be reassured that the charges we make for Company Secretarial services are still significantly less than our competitors, and we are still the only firm we know of that don’t make any charge for the use of our Registered Office address either!
Key Facts
- Companies House filing fees set to increase from 1 May 2024
- The Confirmation Statement filing fee will increase from £13 to £34
- There is also a new requirement to provide Companies House with a registered email address
- We’re having to increase our fees by £4+VAT per month to cover both of these changes
For more information on the forthcoming changes, please contact our Company Secretarial Clerk Laura Brown.
High income child benefit charge thresholds changes from April 2024
Keith Witchell
In the Spring Budget earlier this month, Chancellor Jeremy Hunt announced that the income threshold for paying back Child Benefit will increase to £60,000 from next month.
As a quick recap, the High Income Child Benefit Charge (HICBC) is a tax charge on families which applies where either parent earns over £50,000 per annum, and imposes an extra tax charge on that parent, based on the amount of Child Benefit either parent has received in that tax year.
Once either parent earns over £60,000 per annum, the HICBC is equal to the Child Benefit received, meaning that you effectively have to pay the whole lot back to HMRC.
The way it works currently, is that for every £100 you earn over the £50,000 lower threshold, you pay back 1% of the Child Benefit received. This means that if one parents taxable income (salary plus benefits in kind plus other income) is £55,000, for example, they have to pay back 50% of the Child Benefit received for their children in that tax year.
Those parents in receipt of Child Benefit that earn over the £50,000 threshold have to complete a Self Assessment tax return, in order to calculate and then pay this punitive tax on families to HMRC.
So, what has changed? The Chancellor announced that the government will move towards a fairer household income test in the future, but this will not happen until April 2026. The reason for this is that the current system can be very unfair, as you could have one parent earning over £50k, while the other earns very little, and they have to pay the HICBC, whereas another couple may earn £49,999 each and they don’t have to pay it. So we are pleased to see that this will now be addressed.
In the meantime, Jeremy Hunt announced that they will increase the HICBC lower and upper thresholds from April 2024. The lower income threshold will increase from £50,000 to £60,000 which is welcome news, while the upper withdrawal threshold will increase from £60,000 to £80,000, meaning that the HICBC will be 1% of the Child Benefit received for every £200 of income over £60,000 from next month onwards, another welcome change.
This therefore means that the Child Benefit received by affected couples will be withdrawn at half of the current rate. For example, under current rules if you earn £8,000 over the lower threshold, the HICBC is equal to 80% of the Child Benefit received, but under the new rules if you earn £8,000 over the lower threshold, the HICBC you will pay is 40% of the Child Benefit received.
In summary: from April 2024 you only start to lose the Child Benefit through the HICBC if either parent earns over £60,000 per annum, and you will only lose it completely if either parent earns over £80,000 per annum. This will be a welcome change for many families.
Any tax planning tips around the HICBC for business owners? Yes, if you have your own company and need to withdraw more than £50k per annum in salary and dividends then this allows a £10k boost in annual income from next year before the HICBC kicks in, and it is well worth considering planning your income (timing of dividends etc) around this. In many cases it might be possible to stay under £50,000 for the current tax year, and then increase to £60,000 for the next tax year. This would be far more tax efficient that having earnings of £55,000 in both years, as you’d then avoid the HICBC in both years. Bear in mind that higher rate tax kicks in once your annual income exceeds £50,270 per annum, but nevertheless, in a world of frozen tax thresholds and high inflation, this will be welcome news for many.
Key Facts
- Lower threshold for High Income Child Benefit Charge increased from £50k to £60k pa from April
- Upper threshold for full withdrawal (repayment) of Child Benefit increased from £60k to £80k pa
- This means 1% of Child Benefit paid back for every £200 of earnings over £60,000 from April
- Currently you pay 1% of Child Benefit back for every £100 of earnings over £50,000 pa
- This system will move to being assessed on household income from April 2026
For more information or help with planning to avoid the HICBC, please contact me.
Paying interest on directors loans
Keith Witchell
With Corporation Tax rates up from April, there’s even more to be gained from finding tax efficient ways for business owners to draw income from their companies.
In most cases, a low-level salary will still be the most tax efficient way to draw an income from your company, even after the rise in Corporation Tax rates, but if you have loaned money to your company then paying yourself interest on that loan is well worth implementing.
In the current landscape of increasing interest rates, you could easily justify charging an interest rate of (up to) 10% on your unsecured loan to the company, so why wouldn’t you?
Before we get carried away, and as a starter for 10 on this, you need to have a credit balance on your Directors Loan. If you are overdrawn (debit balance) then this article is not for you!
We then need to look at how income tax applies. Directors Loan interest is subject to the same tax rates as bank and building society interest, and your personal savings allowance (£1k pa for a basic rate taxpayer, £500 pa for a higher rate taxpayer) can also be utilised against it.
However, if your income (other than dividends) is low then you might also qualify for the starting rate band, which means 0% on the first £5k per annum of interest that you receive.
This is best explained with an example. Jeremy loans his company £100,000. He currently takes an annual salary from the company of £12,570, plus £37,700 of dividends, as he hates paying higher rate tax. He has no other sources of income.
The income tax he will pay is:
| £12,570 @ 0% | on salary | (personal allowance) | £ 0.00 |
| £1,000 @ 0% | on dividends | (dividend allowance) | £ 0.00 |
| £36,700 @ 8.75% | on dividends | (balance) | £3,211.25 |
| £50,270 | Total | £3,211.25 |
If, instead, the company pays him 10% interest on his £100,000 Directors Loan, which equates to £10,000, then he could reduce his dividends to counterbalance this, and the tax he pays will be as follows:
| £12,570 @ 0% | on salary | (personal allowance) | £0.00 | |
| £5,000 @ 0% | on interest | (starting rate band) | £0.00 | |
| £1,000 @ 0% | on interest | (personal savings allowance) | £0.00 | |
| £4,000 @ 20% | on interest | (balance of £10,000) | £800.00 | |
| £1,000 @ 0% | on dividends | (dividend allowance) | £0.00 | |
| £26,700 @ 8.75% | on dividends | (balance) | £2,336.25 | |
| £50,270 | Total | £3,136.25 | ||
Now, you might be thinking, is that really worth it for a personal tax saving of £75 per annum! If that was the full story then I’d be inclined to agree with you. But there is a key difference between interest and dividends for Corporation Tax, as interest is an allowable cost for Corporation Tax purposes, in calculating taxable profits, whereas dividends are not. This means that the company should save (at least) £1,900 of Corporation Tax on the £10,000 interest payment, as opposed to nothing on the equivalent dividends.
In summary then, a £1,900+ Corporation Tax saving for the company, plus a small personal tax saving on top, getting us to almost £2,000 of saving per annum, and potentially more if the company profits are over £50,000 per annum and the 26.5% Corporation Tax kicks in. Not bad eh?
Even if you don’t qualify for the starting rate band (eg. because you have other sources of income outside of the company), then the overall saving in the above example should still be £1,000+ per annum.
Obviously the amount of saving is dependent on the size of the loan and the amount of interest you can justify charging, but there are savings to be made, even for smaller loans and interest amounts.
So, is there a downside? Yes, there is a bit of admin to attend to. Where a company pays an individual interest it is required to deduct 20% tax from the interest payment and pay this over to HMRC quarterly, filling in a form called a CT61. The individual then accounts for this as tax deducted at source on the interest on their personal tax return, meaning they’ve already paid tax on it. We usually advise accounting for the interest annually so that only one form is needed each year, as opposed to four, but ultimately there will be a cost to implementing this measure, albeit way lower than the potential saving.
For further advice on this matter, and how it could be implemented in your company, then please don’t hesitate to contact either myself or your Client Manager.
Key Facts
- A low salary plus dividends is still the most tax efficient way to pay yourself in most cases
- But if you have a credit Directors Loan account you can pay yourself interest on it of 10% pa
- Interest saves Corporation Tax so ends up being more tax efficient than dividends
- Many small business owners will qualify for the £5k pa starting rate band on savings income
- The overall tax saving of interest vs dividends is usually well worth the small admin burden
For further advice on this matter, please contact me.
Return of the mack: associated companies are back from April 2023
Keith Witchell
MACK: Misunderstood Associated Company Kalculation…..well it almost worked! With two rates of Corporation Tax back from April 2023, so too are the dreaded associated company rules.
Most readers will be well aware that the Corporation Tax rate increased from 19% to 25% from April 2023 for company profits over £250,000 per annum. As a business owner myself, I’m not going to lie….I’m still crying about this 6% increase in tax rate!
However, small companies with a profit of up to £50,000 qualify for the small companies rate of 19% on their profits, meaning that companies with lower levels of profit could be unaffected by the main rate change. So at least there’s some reprieve for smaller companies.
But what about companies with profits of £50,000 to £250,000? Profits in that band are subject to an effective Corporation Tax rate of 26.5%! This is 7.5% higher than the tax on that level of profit last year! Ouch!
To illustrate this, if your company has a taxable profit of £100,000 it will pay 19% Corporation Tax on the first £50,000, then 26.5% Corporation Tax on the next £50,000, totalling £22,750. The overall tax rate on a £100,000 profit therefore equates to 22.75%. Which is 3.75% higher than last year…
So why do associated companies affect this? Well the above example assumes a stand alone company, but where there is a group of companies, or more than one company under the common control of the same shareholder (or group of shareholders) then the Corporation Tax bands are split by the number of associated companies.
This means that for groups of companies you need to split the bands between the number of companies in the group. For example, if you have a main trading company, a holding company, and also a separate property investment company which are all part of the same group then (in most cases) the various thresholds are split into 3. This means that each of the 3 companies pay 19% Corporation Tax on the first £16,667 of profit (i.e., £50,000/3), then 26.5% Corporation Tax on the next £66,666 (i.e., £200,000/3), and finally 25% Corporation Tax on all profits over and above £83,333 (i.e., £250,000/3).
The issue here is that the holding company might not be making £16,667 of taxable profit, if all of its income is derived from dividends from the two subsidiary companies (since dividends between companies are tax-free), which means it would be wasting its share of the group’s £50,000 small companies rate band. Plus the trading company might not have been making £250,000 of profit, but now faces the full 25% rate on all profits once over £83,333.
There are planning steps that can be taken to minimise the impact of the rules within groups, but the return of the associated company rules unfortunately brings back a layer of complication that we’ve managed to escape for the last 8 years. Sigh.
So are all companies in a group associated companies? There is a get out for any dormant group companies, and also for a holding company whose dividends out to shareholders are equal to its dividends in from subsidiary companies (we rarely see this in practice), but otherwise yes, they are all associated companies.
What if I have a few companies, but they are not grouped? If you have more than one company with the same controlling shareholder/shareholders then they are also associated companies. So you might have two completely different businesses in different industries operated through limited companies, but if you own the majority of the shares in both companies then they will be associated companies under these rules.
Can it get any worse? Yes it can. Any company controlled by your spouse (or civil partner) will also be an associated company, even if they are run completely separately. Furthermore, any company owned by your parents, grandparents, children or siblings may also be caught by these rules! Oh and if you operate a partnership or LLP, then your fellow partners/members are also classed as your associates so any other companies they control will also be associated companies!
Please say you’re done? Nope. Still more. If another company is substantially commercially or financially interdependent on your company (for example sharing the same premises or staff) then that will be an associated company too!
Phew! So, in a nutshell, you might well have associated companies and not even know it, and if you do then their existence could potentially mean more Corporation Tax for your company to pay, unless your company profits are already over £250,000 per annum (in which case there’s no impact).
The good news is that we are here to help, both in helping you to identify how many associated companies you have, and also in finding ways to minimise the impact of this as far as possible to the rate of Corporation Tax you have to pay. We will always go the extra mile to help our clients with reducing tax bills; its part of our DNA.
If you want further clarity on this topic, and how you might be affected, then please contact your Client Manager.
Key Facts
- 25% Corporation Tax applies to company profits over £250k pa from April 2023
- 19% Corporation Tax still applies to first £50k pa of profit, then 26.5% from £50k to £250k pa
- If there are associated companies, these bands are split by the number of associated companies
- This affects groups of companies and those with more than one company under common control
- Companies controlled by spouses, parents, grandparents, children and siblings are associated too
For further advice on this matter, please contact me.
KRW team news: introducing Eliza Marshall
Keith Witchell
We are pleased to introduce the newest member of our team: Eliza Marshall.
Eliza joined us a couple of months ago, as our receptionist, taking over the reins from Esme Smith who we said a fond farewell to back in February.
As well as reception duties, Eliza also handles a lot of our Companies House and HMRC filings, and also prepares documents for DocuSigning by clients. Over the coming months, Eliza will also take on part of our client onboarding function, to help streamline the process for new clients, and ensure everyone is set up correctly on our systems.
Eliza is young, with bags of energy and enthusiasm, and a desire to really make a difference. Long standing clients might also notice the familiar surname……she is the younger sister of the KRW legend that is Mollie 😊 Outside of the office Eliza coaches a kids’ football team, which makes organising us lot a breeze in comparison!
Key Facts
- Eliza Marshall has joined us as Receptionist and administrator
- She looks after a lot of our Companies House and HMRC filings, plus DocuSign
- She’s also joining our client onboarding team to further streamline the new client experience
- Eliza is young and energetic, and outside of the office she coaches a kids’ football team
For further advice on this matter, please contact me.
45% tax threshold reduced from £150,000 to £125,140 from April 2023
Keith Witchell
In the Spring Budget, Chancellor Jeremy Hunt announced that the additional rate threshold for income tax would be reduced from £150,000 to £125,140 from April 2023.
Let’s start with some context. Prior to this change, the following income tax rates applied:
| Effective tax rate | On income | Cumulative |
| 0% | First £12,570 | £12,570 |
| 20% | Next £37,700 | £50,270 |
| 40% | Next £49,730 | £100,000 |
| 60%* | Next £25,140 | £125,140 |
| 40% | Next £24,860 | £150,000 |
| 45% | Everything else | £150,000+ |
*a 60% tax rate does not actually exist, but this is the impact of losing the personal allowance once income exceeds £100k per annum
A few more caveats/disclaimers: Different tax rates apply to dividend income, and the above assumes that no personal pension contributions or gift aid donations are made.
So, what’s changed? From April 2023, we no longer have the additional £24,860 band of income (from £125,140 to £150,000) which is taxed at 40%, with the additional 45% tax rate now applying to all income over £125,140. This can mean (up to) £1,243 more income tax to pay per annum.
Prior to this change, where business owners had income over £100,000 per annum we used to always advise them to try and push it to £150,000 per annum so that they start to dilute the impact of the nasty 60% tax rate that kicks in for income between £100,000 and £125,140 per annum. Our philosophy was that it was better to earn £100,000 one year and £150,000 the next, as opposed to £125,000 in both years, so that the 60% tax rate was avoided every other year. This income tax planning tip is still valid, just with 45% tax now applying to part of the income in the higher income year.
Is there anything you can do to mitigate it? The simple answer is pensions! Anyone earning between £100,000 and £125,140 per annum should look at making pension contributions, as they will be able to obtain 60% tax relief on their pension contributions that fall into this bracket. The same applies to those earning over £125,140 per annum, as pension contributions will attract 45% tax relief, which is well worth having. Although care will be needed if annual income exceeds £260k as the annual allowance for making pension contributions then begins to taper down.
What other steps could you take to minimise the impact? For those employed then options are limited, although salary sacrifice arrangements for an electric car can be very tax efficient for those earning over £100,000 per annum as the tax savings can be significant.
For business owners the focus is usually on family income, for example, making a basic rate tax paying spouse a shareholder in the company, to help minimise exposure to the higher tax rates as a couple. Other regular recommendations include moving towards tax efficient company cars, and the use of holding companies to make investments, both of which can often reduce the level of income needed from the business, and bring you back below the key higher tax rate thresholds.
For more information or help with planning to avoid the 45% tax rate, then please contact me.
Key Facts
- Additional tax rate threshold reduced from £150,000 to £125,140 from April 2023
- 45% tax now applies to income over £125,140, or 39.35% for dividends
- The loss of personal allowance happens between £100,000 and £125,140, meaning 60% tax
- Investing in pensions is the simplest way to mitigate the impact of these higher tax rates
- Salary sacrifice electric car schemes are also effective, with more options for business owners
For further advice on this matter, please contact me.
Tax savings by investing in VCTS
Keith Witchell
Venture Capital Trusts (VCTs) invest in emerging businesses and offer similar tax breaks to the investor as EIS and SEIS, but there are notable differences.
One key difference is around investment risk. Clearly any investment carries risk, but where EIS and SEIS investments are seen to be high risk as they are investments into individual start-up companies that could fail, a VCT fund invests in a number of businesses, therefore spreading the risk. VCT funds also usually have a strict vetting process for the companies they back and a desire for their funds to be successful to attract new investors, which again should help to mitigate some of the risk.
What kind of tax reliefs do they offer? The first relief on offer is 30% income tax relief. This means that for every £10k you invest into VCTs you will get £3 back in income tax. Of course you need to have an income tax bill in order to get the relief (it only reduces income tax on your income, it can’t create a refund of tax if you don’t owe any), but providing you do, you can invest up to £200,000 per year into VCTs. However, the relief can only be given in the tax year in which the investment into the VCT is made, and there is no option to relate this back to the previous tax year like there is with EIS and SEIS.
The second relief is that any dividends received from the underlying companies in a VCT fund are completely tax-free for the investor. In contrast, dividends on EIS or SEIS shares are not tax-free, so this offers higher earners a useful tax-free income.
The third relief is that the sale of your VCT investments are free from Capital Gains Tax, after a qualifying ownership period of 5 years. This qualifying period is longer than those for EIS and SEIS, but it does mean that any gains on the investments will be tax-free. Plus if you do cash them in after 5 years, you can reinvest the proceeds into further VCTs, getting a second 30% income tax saving on your money.
However, you cannot roll over Capital Gains on other assets you have sold into a VCT investment, as you can with investments into EIS and SEIS shares. So it isn’t the best option for those with gains they want to defer.
So, who might want to make a VCT investment? While anyone can make a VCT investment, we have seen two types of clients recently that have found them really useful.
The first type is a company owner with lots of money building up in their trading company that they would like to get at. If they take large lump sums out of their company, they will face dividend tax at (up to) 39.35%, but by putting those funds into VCTs they will get 30% tax relief, reducing the tax charge on extracting the cash to a maximum of 9.35%. This represents a relatively low tax way to turn company cash into personal cash. Any dividends generated by the VCT funds are tax-free and, providing the VCT funds are successful, the money can come back out after 5 years, or be reinvested into further VCTs for a further 30% tax saving on the funds reinvested. For companies with accumulated cash reserves this is well worth considering, as an alternative to making investments via the company, and/or waiting for a future sale/winding up of the company in the hope of paying 10% tax on the accumulated funds.
The second type are property investors with buy-to-let properties held in their own names. Over recent years successive tax changes have meant that those with high earnings that have mortgaged buy-to-let properties are paying disproportionately high levels of tax on their rental returns. However, by investing their rental profits into VCTs they get the immediate 30% income tax relief, which helps to offset the punitive property tax. Where property investors are not reliant on the income generated from the portfolio, and are holding them for future capital growth, this can represent an efficient way to mitigate the high income tax imposed on property rents. Plus of course any dividend income generated by the VCT funds are tax-free and don’t therefore add to the annual income tax burden for property investors.
For further advice on the tax breaks for VCTs then please contact me, or reach out to Ben or Alan at KRW Financial Planning, who can give further advice on this type of investment.
Key Facts
- Venture Capital Trusts are managed funds that invest in emerging businesses
- Investments of up to £200k pa into VCT funds receive income tax relief of 30%
- Any dividends received on VCTs are completely free of income tax
- After a qualifying period of 5 years, any gains from selling VCT funds are Capital Gains Tax free
- They offer a low tax way to extract surplus cash from your company, or to mitigate property tax
For further advice on this matter, please contact me.
What is the optimum salary level for company owners from April 2023?
Keith Witchell
Every tax year the National Insurance and tax thresholds change, and clients ask us what level of salary they should pay themselves from their companies?
However, this year is slightly different, as the previous chancellor aligned the employees NIC threshold with the tax-free personal allowance of £12,570 in July 2022, and those allowances have been frozen.
Therefore the main change for this tax year compared to last, is that we no longer have a mid tax-year change in threshold, or a hybrid salary amount. Its all a lot more simple!
So, what is the optimum salary level for you? In almost all cases the answer to that question is now £12,570 per annum.
The reason we are recommending £12,570 per annum, is that this is both the tax-free personal allowance, and the employees NIC threshold for the 2023/24 tax year. This means that your gross and net salary will be £12,570 per annum (£1,047.50 per month).
This level of salary will incur some employers National Insurance because the secondary threshold above which that kicks in is £9,100 per annum. The rate of employers NIC for salary over £9,100 per annum remains at 13.8%, which means that if you pay yourself a salary of £12,570, the employers NIC for the year for the company to pay will be £478.86.
However, with Corporation Tax starting at 19% we advise paying the salary of £12,570 as the Corporation Tax saving of the salary over and above £9,100 comfortably exceeds the employers NIC cost. For companies with profits over £50k per annum, the Corporation Tax saving on the additional salary rises to 26.5%, which is almost double the employers NIC cost.
Furthermore, all companies with at least two people on the payroll earning over the NIC threshold receive the Employment Allowance which covers the first £5,000 of employers NIC per annum. For smaller businesses this is likely to cover the NIC owed on your salary, meaning nothing to pay.
For businesses that are already fully utilising the Employment Allowance against the employers NIC for their employees, we still advise paying the £12,570 salary, due to the Corporation Tax saving exceeding the employers NIC cost, as set out above.
Are there any exceptions to the optimum salary level of £12,570? Yes, bet these are rare. In fact, pretty much the only time we would recommend a lower salary for a business owner, is where the company is making less than £50k per annum profit, you are the sole employee on the payroll, and you have other sources of income that utilise part/all of your tax-free personal allowance. Or if the company is loss making, or has profits under £9k per annum. In these cases we would recommend a salary of £9,100 per annum.
If we run your payroll for you then we’ll be in touch soon to formalise the recommend salary amount, 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 now aligned with tax-free personal allowance @ £12,570 pa
- As a result £12,570 becomes the optimum salary amount from April 2023 for most of our clients
- Employers NIC kicks in @ £9,100 pa, but may be covered by the Employment Allowance
- Even where the employers NIC is payable, the Corporation Tax saving should be higher
- The optimum salary for those with other sources of income and low profit companies is £9,100 pa
For further advice on this matter, please contact me.
KRW launches new client service: introducing KRW Financial Planning
Keith Witchell
Fanfare please! This month sees the launch of a brand new independent financial advice service for our clients: KRW Financial Planning.
As a firm we always try to be as proactive as possible in helping our clients to save tax, and often in our pre-year-end tax planning meetings, we discuss making pension contributions as one of the few remaining ‘golden nuggets’ for saving Corporation Tax. During these chats we are often asked if we can help with setting up pensions etc…….which got us to thinking……how great would it be if we could offer this service to our clients…..?
So, after a fair bit of research and planning…..we’re delighted to announce that we’ve set up a joint venture with a local firm of Independent Financial Advisers to do just that, called KRW Financial Planning, which launches this month!
We’re pleased to introduce Ben Foster and Alan Tytherleigh who will be heading up this service. Ben and Alan are both IFAs, and they run Odyssey Wealth, based in Milton Keynes. We’ve come to know them pretty well over the years, as both of our firms share a similar ethos in terms of building long term client relationships by giving a first class service for a fair and transparent fee. Their business has been steadily growing like ours and they have a similar entrepreneurial mindset.
So, what can they do for you? KRW Financial Planning can offer help with setting up pensions, recommending and placing investments, retirement planning, and all types of financial advice. They are used to dealing with business owners and understand the challenges they face. Plus, they are very switched on when it comes to tax saving opportunities and using technology to improve their interactions with clients – two things that are very close to our hearts too!
One of the key advantages this offers our clients is joined up thinking in terms of tax and financial planning, as our team will work closely with theirs, in order to ensure clients using the service reap the benefits.
This won’t change anything for clients that already have their own IFAs – we’ll always be happy to work with them to ensure clients receive the best overall advice.
While their office is based in Wolverton Mill in Milton Keynes, Ben and Alan will regularly be in our offices, and can arrange client meetings there too.
For more information on this new service, and about Ben and Alan, please feel free to take a look at our website.
Or please feel free to contact Ben or Alan directly to see how they can help.
Key Facts
- We’re proud to launch a new IFA service for our clients: KRW Financial Planning
- This is a joint venture with Odyssey Wealth who we know well and have similar values
- It will be headed up by Ben Foster and Alan Tytherleigh, both qualified IFAs
- It offers pensions, investments and financial planning advice, with tax savings at the core
For further advice on this matter, please contact me.