cheap accountants - salary 2

We are about to see further changes to the dividend tax allowance in the not so distant future, the strategy of paying yourself a low salary topped up with dividends from your limited company remains the lowest tax method of extracting income from a limited company. So the strategy to pay yourself remains the same but this blog article will explain how much you can pay yourself without incurring any income tax and national insurance charges.

With a new tax year quickly approaching (6 April 2018 to 5 April 2019) it is timely to update the readers of our blog on how much to pay yourself in salary from your limited company during the 2018-19 tax year.

The good news is that the monthly sum that we recommend you pay yourself has increased to £702 a month (up from £680 a month during 2017-18) which results in an annual director’s salary of £8,424. You should then pay yourself dividends on top of this low level of salary.

At this level of salary you won’t have to pay employer or employee national insurance contributions and no income tax will be due to be paid to HMRC on the wage you receive. The dividends you receive will be subject to dividend tax but a tax-free dividend allowance of £2,000 will apply during 2018-19.

The total director salary of £8,424 is less than the personal allowance (£11,850) for the 2018-19 tax year but don’t be tempted to pay yourself up to the personal allowance as you will then end up paying more tax.

If you pay up to the personal allowance you will be liable to pay national insurance contributions that can be avoided at the £8,424 salary level.

The lowest tax option is to simply pay yourself dividends instead to use up the remainder of your personal allowance and then use the dividend tax free allowance. This means that you can receive a total of £13,850 tax free.