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Limited Company Series – Salary

The usual choices for salary are either based on the level of tax and national insurance free allowance or based at the level of the National Minimum Wage.

Tax & national insurance free allowance (tax year 2013/14)  Annual salary £7696

National Minimum Wage, £6.19* x 37.5 hr week Annual salary £12071

Deductions  (NIC £1648 – Corporation Tax relief £996)  Tax due £652

* Increasing to £6.31 from 01.10.2013

Clearly the salary set at the earnings threshold is the most tax efficient choice.

Key points

If you have a written contract of employment between yourself and your company, the NMW must be applied.

If you pay personal pension contributions you will only receive tax relief amounting to the value of the gross salary paid.

Qualifying state pension, you must earn at least £5668 to qualify this tax year.