One of the most common questions we get asked is how should I pay myself efficiently? The answer is quite straightforward but we have created a Tax Calculator you can use to see the numbers behind the answer.
Based on your profit and other income, this calculator provides a breakdown of all of the taxes you can expect to pay as well as a final take-home figure. The taxes illustrated are:
It illustrates your optimal salary dividend mix for minimising your overall tax liability and also provides a comparison between Sole Trader and Limited Companies in terms of tax-efficiency at various revenue levels.
Note, some employers, typically those with two or more employees can claim the Employers Allowance, which increases the efficient salary paid level slightly. If this applies to you, refine these numbers with your accountant.
For 2020/21, typically you will pay yourself £8,878 in salary and the remainder of profit you want to extract, in dividends. This is called the Primary Threshold and above this your company pays 13.8% Employers NIC which makes it less efficient to pay salary than dividends. This assumes you have not received salary elsewhere in the year.
For 2020/21, typically you will pay yourself £12,500 in salary and the remainder of profit you want to extract, in dividends. This is your Personal Allowance and above this level you pay income tax on your earnings. As a company with more than one employee, you qualify for Employers Allowance for the first £4,000 of Employers NICs which is why the salary amount is higher in the single employee scenario. This assumes you have not received salary elsewhere in the year.