Companies that can pay dividends to directors will often prefer to pay a smaller salary and top up with dividends.
From 6 April 2023 the optimum salary for 2023/24 is £12,570 for most directors who can top up with dividends.
This salary amount will incur no employees national insurance as it is set at the “primary earnings limit”, the amount you can earn in each job without employees NI being payable. A salary at £12,570 does give an NI record for state pension purposes because the amount is above the “lower earnings limit”.
There will be no income tax for many people on £12,570, as it matches the personal allowance. Even if there is income tax to pay (e.g because other income reduces your tax code) it is still the optimal salary for 2023/24.
There will be employers NI to pay, of £478 for the year. However the saving in corporation tax (compared to paying a lower salary and more dividends) more than makes up for this small NI cost.
Note that the following companies cannot pay dividends in this way so the above advice does not apply:
- Companies Limited by Guarantee
- Companies with accumulated losses
- Community Interest Companies (unless the dividend cap is sufficient)
- Any charities