Whilst company directors hung their heads in their hands following the increase in corporation tax rates up to 25% (marginal rate 26.5% for profits between £50,000 and £250,000), we looked at what would be the most tax efficient salary for 2023/24. We will break this down into companies with taxable profits up to £50,000 and companies where their taxable profits fall into the marginal rate band (£50,000 to £250,000).
Companies with profits up to £50,000
Now the employee national insurance threshold has aligned with the personal allowance at £12,570, single director companies should now increase their tax efficient salary from £9,096 to £12,570. Yes, there will be employer’s national insurance to pay of £479 but the overall corporation tax saving is £2,000 (compared to having a salary of £9,096 and the corporation tax saving is £1,729). The tax saving becomes even better if the single employee company can take on an extra employee, sometimes this is the spouse, where the overall saving becomes £2,388 (x2) for the husband and wife business.
Companies with profits falling in the marginal rates (£50,000 to £250,000)
As above for single director companies but the overall tax saving is £2,979 and £3,331 (x2) for the husband and wife company. This is because the marginal rate of corporation tax at 26.5% makes the tax saving even larger.
Now is a good time to review your director salaries before the start of the tax year. If you need assistance with this then please contact us on 01245 326280.
