Decoding optimal Directors’ salary for 2024/2025

As the new tax year approaches, business owners and company directors find themselves once again contemplating the optimum salary strategy for the forthcoming fiscal period. Drawing funds as a combination of salary and dividends is a common practice among limited company directors, but determining the most tax-efficient approach involves careful consideration of various factors.

Limited company directors, despite their ownership, are legally distinct entities from their companies. This necessitates a thoughtful approach to salary decisions, considering both personal financial optimisation and tax implications. 

At CJ Bookkeeping, we understand the challenges business owners face, and we’re here to guide you through the factors that contribute to the optimum director’s salary for 2024/2025.

Key considerations for Tax efficiency

Income Tax and National Insurance (NI) Thresholds:

Directors must be aware of the Income Tax and NI thresholds. For those eligible for Employment Allowance, the optimum salary would be £12,570.

Companies with employees eligible for Employment Allowance can consider a salary of £12,570 to optimise tax savings.

Personal circumstances and other income sources:

Personal circumstances and income from other sources should be factored into the decision-making process.

Legal Requirement vs. Business Expense:

While there is no legal obligation to pay a director’s salary, it is a legitimate business expense. Paying a salary can lead to Corporation Tax savings.

Optimal salary options for owner manager businesses

Option 1 – Single Director with no employees (not eligible for ER NI allowance):

  • Salary: £9,100 per annum
  • Corporation Tax Savings: £1,729
  • This option minimises PAYE tax, employees’ and employers’ NI, while retaining the NI State Pension credit and saving 19% Corporation Tax.

Option 2 – Director with employees (eligible for ER NI allowance):

  • Salary: £12,570 per annum
  • Corporation Tax Savings: £2,480
  • Employer’s NI Liability: £478

Despite triggering an employer’s NI charge, this option maximises Corporation Tax savings, resulting in a net saving of £2,002.

Balancing act for Pension Credit Qualification

To qualify for the state pension credit, it’s essential to receive a salary above the Lower Earnings Limit (LEL) for the tax year.

Same as 23/24: 

  • £123 per week 
  • £533 per month 
  • £6,396 per year

Get in touch

As we approach the new tax year, business owners and directors are tasked with making strategic decisions to optimise their financial positions. The ideal director’s salary for 2024/2025 requires a careful balance between tax efficiency, legal considerations, and individual circumstances. At CJ Bookkeeping, we specialise in working closely with directors to help you understand the intricacies of the available options, so you can confidently navigate the fiscal landscape, ensuring both personal financial well-being and the continued success of your businesses. For assistance, or if you have any questions, please do get in touch

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