What is the optimum salary level for company owners from April 2023?

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.