What level of self-employed contractor salary (UK) should you take when running your own limited company? When you’re becoming a contractor (UK) or have been a contracting director for a while, you’re in control of your own finances. Basically, 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 your own business, it’s key to maximise your overall UK contractor take-home pay. However, taking a tax-efficient and optimum director’s salary 2023/24, in terms of PAYE for contractors, is a key aspect. Therefore, let’s research how to pay yourself as an independent contractor.
When you decide on 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’ll 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 to 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 that they choose will affect their overall IT contractor tax bills.
The subject of how do 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, when we research how contractors get paid and what can you pay yourself as an independent contractor what’s the options? Basically, 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. Basically, the choice is yours. Therefore, when you calculate 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 do I get paid as a contractor. What’s more, we’ll consider what should be your minimum director salary (UK) and the UK contractor salary threshold. We’ll also investigate the optimum director’s salary 2023/24 and consider the various factors around this.
When you’re a `self-employed contractor’ and you run your own company, you aren’t `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’ll be many common questions from contractors regarding their pay when they first start up their own company. Some examples of such questions will include:
- Do I have to pay myself a salary as director?
- How to do payroll yourself (UK).
- How to pay yourself from a limited company (UK).
- How to 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 do you pay yourself as a limited company owner. Indeed, when you have a limited company, paying yourself as a director is a key question which needs careful consideration.
What to consider first regarding your independent contractor salary per month
How much do you get taxed as a contractor on your UK contractor take-home pay? Basically, when you choose your director pay level, this needs careful consideration. Your chosen level of limited company salary from your contracting work determines how much contractor PAYE and NI you pay. As a result, many UK professionals will choose to take a contractor tax-efficient salary.
The other main contractor tax (UK) for your company is Corporation Tax (CT). Basically, this is payable on company profits which you generate from your contract income. Any salaries which your company will pay are an expense when you work out the company profit. Therefore, when you’re paying yourself from a limited company, the salaries reported will reduce your company’s CT.
Besides your own 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. As a result, this’ll help save company tax and also give your spouse a wage.
Furthermore, depending on what your spouse earns, it may also be an idea to consider making use of the transfer of the UK Marriage Allowance.
Your company’s profits
When you consider can I pay myself as a contractor from my own company, the contract consultant salary cost will be paid out of your company profits. Basically, when you calculate your company profits you deduct all business expenses from your company income. Therefore, there should be enough remaining to pay you your chosen contractor monthly salary after working this out.
What to consider for your limited company contractor salary
How much should I pay myself as a director?
There is no contractor minimum wage requirement when it comes to your limited company director salary (UK). That’s unless you have a contract of employment with your UK company.
When you consider how much to pay yourself as a director as your contracting salary, you must consider various factors. Most importantly, these’ll include being tax-efficient and ensuring that you take enough contractor pay to justify any pension contributions. This may even involve taking higher contract take-home pay in terms of company director salary, should you have reasons for doing so.
Each contractor and independent consultant will have their personal preference regarding what they decide on as their level of private contractor salary. When you’re being paid as a contractor from your own company, it’s your choice what your company pays you in respect of take-home pay (independent contractor).
If you don’t have any reasons for taking a higher salary and level of contractor remuneration for pension or other reasons, you might aim for a tax-efficient mix of independent contractor pay and dividend income. Basically, these are part of our handy guide which covers tax tips for contractors and small business owners.
The options available for your contractor take-home salary
As we mention earlier, when running your own UK limited company, you can choose your level of contractor wage. Basically, this’ll be part of your overall contracting limited company take-home pay. Therefore, what’s the optimum salary for directors 2023/24?
Through your own UK company, you could take a director salary above the NI threshold (£1,047.50 per month) and take the rest of your take-home pay (limited company) as dividends. 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 suggestion level of contractor pay is tax-efficient for you. In the 2023/24 tax year, the tax-free personal allowance is £12,570. In addition, you could also 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 need to pay over PAYE/NIC. If it does, the PAYE/NIC on your IT contractor payroll (UK) are part of your contractor limited company taxes.
The salary of a contractor in 2023/24
UK NI thresholds (contractor salary threshold 2023/24)
Let’s now look at the contractor National Insurance thresholds which apply to a director’s salary 2023/24. Therefore, such deductions for a contractor’s salary are as follows:
- Employers will deduct National Insurance Contributions (NIC) on earnings above the lower earnings limit (LEL). In 2023/24, this is set at £533 per month or £6,396 per annum. At this level, benefits will accrue for the employee’s state pension.
- The primary threshold (PT) for employee contributions is set at £1,048 per month or £12,576 per annum.
- The upper earnings limit is set at £4,189 per month or £50,270 per year.
- The secondary threshold (applicable to employers) is set at £758 per month or £9,100 per year. However, there’s no upper earnings limit for employer NIC liabilities.
UK NI rates
The rates for National Insurance in 2023/24 for your contract salary are as follows:
- 12% employee NI for income between the primary threshold and the upper earnings limit.
- 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.
The above NI rates were all increased by 1.25% during 2022/23, however the government later reverted on these increases. As a result, the NI rates in 2022/23 were a mixture of the two rates i.e., the employer’s NI mixed rate was 14.53%.
UK income tax rates
The UK contractor income tax rates, personal allowance and tax bands can change year on 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:
Contractor salary and optimum director’s salary 2023/24 suggestion
In the tax year 2023/24, a contractor tax-efficient salary and director’s optimum salary is now £1,047.50. This’ll equate to a contractor annual salary of £12,570. Indeed, this could be seen as the best way to pay independent contractors (UK) in terms of tax efficiency. What’s more, 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 actually start to accrue state pension benefits above £533 per month. It’s key to pay a salary at a level which’ll incur NI credits that qualify for the state pension. Indeed, you need 35 qualifying years during your working life to qualify for the full state pension at retirement age of 66.
Indeed, £1,047.50 per month private contractor pay is the optimal director salary 2023/24 if you’ve no other sources of income that’ll 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 have other income, either £533 up to £758 per month will be the optimal director’s salary 2023/24. However, to ensure your NI contributions count as a `qualifying year’ in respect of NI credits for state pension purposes, you need to 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 at the moment and is therefore not paying Corporation Tax, you should also consider a lower monthly contractor take-home salary level, such as the £533 or £758 suggestion above.
Further thoughts on remuneration level suggestion
Indeed, the level of salary for a contractor we mention above does assume, of course, that you’ll fall outside of the IR35 rules. Basically, 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 the duty of determining the IR35 status of a contractor’s work falls on the service provider rather than the contractor. At the moment, this only applies to large and medium companies.
Tax calculators online can help you work out the tax bills (PAYE tax and NI) on your chosen pay level. This website aims to bring you a calculator in the future.
An example of a contractor tax-efficient salary and being tax-efficient as a whole
Many IT professionals, or other independent consultants, may take an optimum director’s salary (2023/24) of £1,047.50 per month. Secondly, if you’re starting to contract for the first time, you could set your contractor starting salary at this level of optimal salary for directors 2023/24. 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:
An income of £50,262 (assuming that the contractor has no other substantial income from other sources) would leave the individual under the higher rates tax level (£50,270) in 2023/24. 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 2023/24 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, basic rate dividend tax on this at 8.75% would equate to a personal tax bill of £3,210.55.
As we mention earlier, if your company isn’t currently paying CT, you should consider a monthly pay level of £758 instead.
Pension considerations and your contractor salary
When you make pension payments, the general advice is the level of salary of a contractor should be at least as much as your pension payments. Your pension adviser can let you know here. Basically, they can advise about what contractor pay level you need to be able 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 needs to be at least as much as such contributions.
Let’s assume you’d like to pay £25K into your pension personally 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 had employment at several different employers in the past and as a result, have various pension schemes. As a result of this, something that may interest you is pension consolidation.
We consider in this guide how to pay yourself in 2023/24. Indeed, your optimum director’s salary 2023/24 is part of your overall ltd company take-home pay. Basically, when you’re contracting and paying yourself from a limited company, the most contractor tax-efficient salary option is to take a director salary just above the NI threshold. As a result of your tax-effective optimum director’s salary, you’ve the option to 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 on how to be tax-efficient when you run your own company.
Link to Contractor Advice UK group on