Remuneration Planning for Company Directors in 2022/2023

This is a first for me. I’ve been in accounting since 1993 and never before have tax rates been altered mid-year. So why now?

The Chancellor is bringing in new National Insurance rates but has deferred their implementation to July. This is to give payroll software providers an opportunity to get their systems up to date.

What does this mean for business Directors?

In previous years I have published straightforward guidance on how to remunerate yourself tax-efficiently as a Company Director. This year things are more complex. I could walk you through numerous different methods to remunerate yourself, but that’s an inefficient use of your time and I like to keep things simple. Instead, I’m going to show you my top recommendation.

Tax-efficient pay for Company Directors in 2022/2023

This is intended for a company director and their spouse/partner (if employed by the company).

The three figures for each month are:

  1. Monthly salary – this is the amount that is processed through your company payroll
  2. Monthly dividend – payable if there are sufficient profits in your business
  3. Personal tax bill – this is the amount you need to put to one side to pay your tax bill, assuming the full monthly salary and dividend have been paid.

Tables

You’ll notice in July your dividend will increase and your salary will decrease, balancing your income month on month, hence the consistent allocation for personal tax each month.

For clarification: the £260 per month is representative of the 8.75% dividend tax and we always recommend to our clients that they save this as they go. The truth is that it was never your money in the first place – so don’t spend it. Save it wisely and you might even make a few pounds of interest at Her Majesty’s pleasure.

 A mistake that could cost you dearly

Using the scenarios above, your salary will not be liable for Employee National Insurance contributions.

An alternative way to remunerate yourself as a Company Director is to pay yourself a consistent monthly salary and monthly dividend. This will give you an identical outcome, however, you must ensure your payroll software is set up correctly, else National Insurance payments could be deducted. That is why my recommendation is for a change in remuneration in the month of July 2022, reducing your risk of paying unnecessary NI.

Let’s get personal

These figures are based purely upon the earnings that you take from your business and do not take into account any other income that you receive from areas such as benefits, interest on savings and investments or rental income.

Nothing beats personal service. We calculate these figures for all of our clients, taking into account their individual circumstances.

With the right advice, you can have confidence you’re claiming only what you’re entitled to and paying the minimum of tax you are legally required to. If you’re unsure, call our team on 01923 800444. There’s no cost to you and a second opinion will put your mind at rest.