Directors and the minimum wage – myth buster
Despite the myths, national minimum wage does not apply to directors. Do not be fooled if your accountant suggests that you take a salary based on national minimum wage – you will be paying unnecessary National Insurance.
In the majority of cases (and obviously all cases are unique) the optimum annual salary level should be set to match the secondary threshold for NI. For 2017/18 this is £8,160.
You will pay no tax or NI on this salary, but the salary is treated as an expense to your company. The company will therefore benefit by saving corporation tax at 19%.
You can then withdraw dividends to boost your income.
If for example, you are currently paying a salary of £12k per annum you are probably paying Employees NI, Employers NI and income tax.
Not only will this leave you paying more tax and NI but also with the headache of having to keep track of making PAYE/NI payments.
By adopting a salary equivalent to the secondary NI threshold no tax or NI needs to be paid.