Why £1,047.50 Per Month Is a Common Director’s Salary
If you are a limited company director, you may have heard that £1,047.50 per month is a “recommended” salary.
It is not random. It is calculated.
When structured correctly, this level of salary can help you stay tax efficient while making full use of the allowances available to you. But like most things in tax, it only works when set up properly.
Why That Salary Figure Matters
The commonly used monthly figure of £1,047.50 is based on annual thresholds for Income Tax and National Insurance.
When calculated correctly, this salary level can:
✔ Allow you to use your personal allowance
✔ Avoid employee National Insurance
✔ Keep your overall tax position efficient as a director
It is part of a wider strategy that usually involves taking a mix of salary and dividends.
The salary uses available allowances. Dividends are then taken from company profits in a structured way.
Salary and Dividends Work Together
Directors often combine a modest salary with dividend payments.
The salary ensures you:
Maintain entitlement to certain state benefits
Use your personal allowance efficiently
Create a deductible expense for the company
Dividends are then paid from after tax profits.
This combination can be more efficient than taking everything as salary, but only when profits are sufficient and dividend paperwork is prepared correctly.
Payroll Must Be Set Up Properly
This is where many directors get caught out.
Even if you are the only employee in your company, payroll must still be:
Registered with HMRC
Submitted through Real Time Information every month
Processed before payment is made
Recorded correctly in your accounts
Payroll cannot be backdated. If it is not registered or submitted correctly, penalties can apply.
HMRC expect submissions on or before the date you pay yourself.
Common Mistakes We See
Some of the most common payroll errors for directors include:
Paying themselves without registering for PAYE
Forgetting to submit monthly reports
Trying to correct payroll months later
Taking salary at the wrong level
Confusing salary and dividends
Small mistakes can quickly become compliance issues.
Why Getting It Right Matters
When director payroll is handled correctly, it supports a tax efficient structure and keeps your records clean.
When handled incorrectly, it can:
Trigger penalties
Create problems with HMRC
Distort your accounts
Cause confusion around dividends
Director pay should be intentional, not guessed.
The Bottom Line
That £1,047.50 monthly salary is not random. It is part of a calculated approach to tax efficiency for limited company directors.
But the strategy only works when payroll is registered properly and submitted to HMRC every month.
If you need help registering for PAYE, running director payroll correctly, or reviewing your salary and dividend structure, get in touch. We will handle it for you and make sure everything is set up the right way.
Meet Lewis
Lewis is a professional accountant and founder of Rhombus Accounting. He regularly shares his knowledge and best advice here on his blog and on other channels such as LinkedIn.
Book a call today to learn more about what Lewis and Rhombus Accounting can do for you.
