How to pay yourself as a limited company director
Make the most of your self-employed income and find out how to pay yourself as a limited company director, using the right combination of salary and dividends. And how to manage National Insurance contributions, Corporation Tax, pensions, business expenses and Directors' loans.
Salary
Most directors will choose to pay themselves a small salary from the business. In order to do this, the company must be registered with HMRC. And you’ll need to ensure that any tax, national insurance (both employee and employer) is deducted and paid to HMRC.
The personal allowance is currently set at £12,570 (as of 6 April 2024). This means, providing you have no other relevant income within the tax year, you can draw a salary up to this amount without the need to pay income tax.
The level of tax you pay will depend on which threshold the salary falls into.
If you pay yourself solely in salary you would pay income tax as follows, based on tax rates as of 6 April 2024 (note there would also be national insurance to pay from both the employee & employer)
- First £12,570 at 0%
- Between £12,571 and £50,270 at 20%
- Between £50,271 and £125,140 at 40%
- Over £125,140 at 45%.
There is a deduction of your personal allowance once you earn over £100,000. For every £2 earned over £100,000 each year, you would lose £1 worth of the £12,570 tax-free personal allowance and if you earned over £125,140 you would lose your entire personal allowance.
Please note Scotland has different tax bands and rates, which you can see here.
Depending on the level of your salary, you may be required to pay national insurance both as employee and employer. Please see national insurance contributions later in this guide.
Reimbursement of expenses
If you have costs which have been made ‘wholly and exclusively’ for the purpose of your business, these can be claimed as a legitimate business cost. Therefore, not only will your business receive tax relief on these expenses, but you will also be able to reimburse yourself personally for the cost.
Examples would include
- Travel costs (business miles)
- Business Insurance
- Equipment
- Software costs
- Professional services
This method would not make up a significant portion of your remuneration, but it is important to claim for legitimate expenses due to the tax advantages. If you’re working from home, you’re also able to claim back the percentage of costs relating purely to business use. Find out what expenses you can claim working from home, here.
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