IT contractor salary & optimum director's salary 2023/24 -part of your overall contractor take-home pay.

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Introduction 

What level of self-employed contractor salary (UK) should you take when you run a limited company? If you’re becoming a contractor (UK) or have been a contracting director for a while, you’re in control of your company’s finances. Indeed, when you’re in business for yourself and plan to pay yourself a salary and dividends, you can decide on your contractor pay level. Indeed, you can choose your level of contractor director salary (UK limited company) and overall income from your business. Therefore, when you’re paying yourself from a limited company, what should you consider for the salary of a contractor? When you have a business, it’s key to maximise your overall UK contractor take-home pay. However, a key aspect is taking a tax-efficient and optimum director’s salary 2024/25 in terms of PAYE for contractors. Therefore, let’s research how to pay yourself as an independent contractor.

When you decide how to pay yourself as a contractor and director, the most tax-efficient salary (UK) is something to consider as part of your overall UK contractor tax planning. In terms of your director salary from your freelance contractor earnings, you can look to pay yourself tax efficiently. As a result, this will help you maximise your contractor take-home pay (UK). Therefore, many UK limited company contractors and independent consultants who work in the IT field (and other industries) should decide on the level of IT contractor salary (UK). As part of their IT contracting work, the remuneration their company pays is within their overall IT contractor take-home pay. Indeed, the level of contractor salaries they choose will affect their overall IT contractor tax bills.

Initial thoughts 

First thoughts 

The subject of how contractors get paid, in terms of contracting pay, is one of the most common things a UK contractor should consider when they run their own company. Indeed, what are the options when we research how contractors get paid and what you can pay yourself as an independent contractor? Your chosen contractor level of company director salary (limited company) could be a low contractor consultant salary. On the other hand, you could take a middle-level independent consultant salary or the highest salary available from your contracting income. The choice is yours. Therefore, when calculating your contractor salary, you can consider what’s best for you. If you choose an IT contractor tax-efficient salary, this is ideal going forward. To sum up, you can ask your accountant to process this in future.

The salary of a contractor can depend on other factors when you decide on your overall contractor income. In this guide, we’ll look at how I get paid as a contractor. We’ll also consider what should be your minimum director salary (UK) and the UK contractor salary threshold. Furthermore, we’ll investigate the optimum director’s salary 2024/25 and consider the various factors involved.

When you’re a `self-employed contractor’ and run a company, you’re not `self-employed’ per se. The correct way to view yourself is as a director and employee of your own limited company.

Some common questions

There will be many common questions from contractors regarding their pay when they start a company. Some examples of such questions will include:

  • Do I have to pay myself a salary as director?
  • How do you do payroll yourself (UK)?
  • How do you pay yourself from a limited company (UK)?
  • How do you pay yourself a salary from a limited company?
  • How to pay yourself as a director.
  • What should my salary be (UK)?
  • Should I pay myself in dividends or salary?

In this guide, we’ll look at how you pay yourself as a limited company owner. Indeed, when you own a limited company, paying yourself as a director is a key question that requires careful thought.

Further initial thoughts on an independent contractor salary

How much do you get taxed as a contractor on your UK contractor take-home pay? When you choose your director’s pay level, this requires attentive thought. Your chosen level of limited company salary from your contracting work determines the amount of contractor PAYE and NI you pay. As a result, many UK professionals will decide to take a contractor tax-efficient salary.

Your company’s other main contractor tax (UK) is Corporation Tax (CT). This is payable on company profits you generate from your contract income. Any salaries your company will pay are an expense when you work out the company profit. Therefore, the salaries reported will reduce your company’s CT when paying yourself from a limited company.

Besides your contractor take-home salary (UK), if you’re married or have a partner, you might consider paying your spouse a salary. You can do this if they do some work for your contractor limited company. That’ll help you save company tax and give your spouse a wage.

Furthermore, depending on what your spouse earns, it may be a good idea to consider making use of the UK Marriage Allowance transfer.

Your company’s profits

When you consider whether I can pay myself as a contractor from my own company, the contract consultant salary cost is paid out of your company profits. As a contractor, when you calculate your company profits, you deduct all business expenses from your company income. Therefore, after determining this, there should be enough remaining to pay your chosen contractor’s monthly salary. 

What should you consider for your limited company contractor salary per month? 

How much should I pay myself as a director?

There is no contractor minimum wage requirement for your limited company director salary (UK). That’s unless you have a contract of employment with your UK company.

It would be best to look at various factors when considering how much to pay yourself as a director as your contracting salary. Most importantly, these include being tax-efficient and ensuring you take enough contractor pay to justify any pension contributions. This may even involve taking higher contract take-home pay regarding company director salary, should you have reasons for this.

Each contractor and independent consultant has a personal preference regarding their level of private contractor salary. When you’re being paid as a contractor by your own company, it’s your choice what your company pays you regarding take-home pay (independent contractor).

Suppose you don’t have any reasons for taking a higher salary and level of contractor remuneration for pension or other reasons. In that case, you might aim for a tax-efficient mix of independent contractor pay and dividend income. These are part of our handy guide, which covers tax tips for contractors and small business owners. 

Contractor take-home salary options

As we mentioned earlier, when running your own UK limited company, you can choose your level of contractor wage. Basically, this is part of your overall contracting limited company take-home pay. Therefore, what’s the optimum salary for directors in 2024/25?

You could take a director salary above the NI threshold (£1,047.50 per month) and the rest of your take-home pay (limited company) as dividends through your UK company. Indeed, National Insurance for contractors is something to consider, as many typically take a lower salary and the rest of their earnings as dividends. As a result, the above-suggested level of contractor pay is tax-efficient for you. The tax-free personal allowance In the 2024/25 tax year is £12,570. In addition, you could take a higher contracting salary than £1,047.50 if you so wish.

If you work in IT, as part of your IT contractor pay, your company may have to pay PAYE/NIC. If it does, the PAYE/NIC on your IT contractor payroll (UK) is part of your contractor limited company taxes.

Salary of a contractor in 2024/25 

UK NI thresholds (contractor salary threshold 2024/25)

Let’s now look at the contractor National Insurance thresholds, which apply to a director’s salary 2024/25. Therefore, such deductions for a contractor’s salary are as follows:

  • The Lower Earnings Limit (LEL) is set at £533 per month or £6,396 per annum. There are no National Insurance Contributions (NIC) at this level; however, benefits will accrue for the employee’s state pension at this salary level.
  • The Secondary Threshold (ST) is set at £758 per month or £9,100 per year. Employers are required to pay employer’s NI on earnings above the ST.
  • The Primary Threshold (PT) is set at £1,048 per month or £12,576 per annum. At this level, employees start paying NI contributions.
  • The Upper Earnings Limit (UEL) is set at £4,189 per month or £50,270 per year.
  • There’s no upper earnings limit for employer NIC liabilities.

UK NI rates

The rates for National Insurance in 2024/25 for your contract salary are as follows:

  • 8% employee NI for income between the Primary Threshold and Upper Earnings Limit. The employee NI rate was 10% from 6 January 2024 to 5 April 2024; before 6 January, it was 12%.
  • 2% employee NI for income over the Upper Earnings Limit.
  • 8% employer NI for income over the Lower Earnings Limit for NIC Classes 1, 1A, and 1B.

UK income tax rates

The UK contractor income tax rates, personal allowance, and tax bands can change each tax year. At present, gross pay above the current personal allowance of £12,570 will incur income tax at 20%. ~Therefore, the current UK income tax rates are:

Personal allowance Basic rate tax Higher rate tax Additional rate tax
20% 40% 45%
2024/25 £12,570 £0-£37,700 £37,701-£125,140 £125,141 and above

Contractor salary & optimum director’s salary 2024/25 suggestion

In the tax year 2024/25, a contractor’s tax-efficient salary and director’s optimum salary is now £1,047.50. This will equate to a contractor’s annual salary of £12,570. Indeed, this could be seen as the best way to pay independent contractors (UK) in terms of tax efficiency. Moreover, many IT contractors and contracting professionals in other industries can choose this level of annual remuneration. As a result of this level of contracting pay, your company will make Corporation Tax (CT) savings at either 19% or 25%, even though you start to accrue state pension benefits above £533 per month. It’s key to pay a salary at a level that will incur NI credits that qualify for the state pension. Indeed, at present, you require 35 qualifying years during your working life to be eligible for the full state pension at the retirement age of 66.

Indeed, £1,047.50 per month private contractor pay is the optimal director salary 2024/25 if you’ve no other sources of income that use up your personal allowance. In addition, it’ll help lower the tax rate for independent contractor purposes. Other sources of income include rental profits, self-employment profits, pension income, etc. Therefore, if you’ve other income, £533 up to £758 per month is the optimal director’s salary 2024/25. However, to ensure your NI contributions count as a `qualifying year’ in respect of NI credits for state pension purposes, you should pay yourself a UK contracting salary of £533 or more for the full twelve months of the tax year.

If your company isn’t trading and is therefore not paying Corporation Tax, you could consider a lower monthly contractor take-home salary level, such as the £533 or £758 suggestion above.

Further thoughts on the suggested salary level

Indeed, the salary level for a contractor we mention above assumes you’ll fall outside the IR35 rules. The rules came into force in the public sector on 6 April 2017 and then in the private sector on 6 April 2021. Consequently, the IR35 reform effectively means determining the IR35 status of a contractor’s work falls on the service provider rather than the contractor. Now, this only applies to large and medium companies.

Tax calculators online can help you work out the tax bills (PAYE tax and NI) for your chosen pay level. This contractor website aims to bring you a calculator in the future.

More considerations

An example of a contractor’s tax-efficient salary & how to be tax-efficient

Many IT professionals or other independent consultants may take an optimum director’s salary (2024/25) of £1,047.50 per month. Secondly, if you’re starting to contract for the first time, you could set your contractor’s starting salary at this optimal level for directors 2024/25. In addition, if your business is generating enough profits through the company, you could decide to take the following as annual contractor take-home pay from your company:

IT contractor salary 12 x £1,047.50 12,570.00
Dividend 12 x £3,141 37,692.00
50,262.00


An income
of £50,262 (if the contractor has no other substantial income from other sources) would leave the individual under the higher rates tax level (£50,270) in 2024/25. Indeed, this level and mix of income are tax-efficient. As a result, you’ll both maximise your basic rate tax band and not incur any personal higher rates tax. The independent contractor taxes (UK) in 2024/25 on this would be the dividends of £37,692 less the annual dividend allowance of £1,000, giving taxable dividends of £36,692. As a result, the basic rate dividend tax on this at 8.75% would equate to a personal tax bill of £3,210.55.

As mentioned, if your company isn’t currently paying CT, you should consider a monthly pay level of £758 instead. 

Pension considerations & your contractor salary 

When you make pension payments, the general advice is that the level of salary of a contractor should be at least as high as your pension payments. Your pension adviser can let you know about this. They can advise you about the contractor pay level you require to make your pension payments.

If your company makes employer pension contributions, there’s no legal requirement for your wages to be as much as these pension contributions. However, this is unlike when you make such contributions yourself. When you do so, your gross pay must be at least as much as such contributions.

Suppose you’d like to personally contribute £25K to your pension in a given tax year. To do this, your contractor wages should also be at least £25K. Comparatively, if you paid the £25K into a pension through your company, there’d be no requirement to set your gross wage at £25K.

You may have worked for several employers in the past and, as a result, have various pension schemes. Because of this, something that may interest you is pension consolidation. 

Final thoughts

This guide considers how to pay yourself in 2024/25. Indeed, your optimum director’s salary 2024/25 is part of your overall Ltd company take-home pay. When contracting and paying yourself from a limited company, the most tax-efficient contractor salary option is to take a director’s salary just above the NI threshold. As a result of your tax-effective optimum director’s salary, you can take the rest of your earnings as dividends. Indeed, this is the most tax-efficient contractor salary and overall combination of contractor take-home pay.

Finally, another helpful guide on taking income from your company is the most tax-efficient way to pay yourself. Indeed, this extrapolates on this guide in more detail. Moreover, it gives an overall view of tax efficiency when running a UK company.

Link to Contractor Advice UK group on

LinkedIn https://www.linkedin.com/groups/4660081/

Published On: April 6th, 2024 / Categories: Contractor Tips, Payroll /

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One Comment

  1. scott291074 April 19, 2020 at 11:34 am - Reply

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