What is the optimum level for directors salaries for 2024/25?

March 29, 2024|In KRW Q&A|By 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.

Keith Witchell