This strategy should be fairly familiar to everyone, as generally all people who are working receive a salary. This is far and away the most obvious, and common, way to get paid from your business.

Where the differences lie is at what level each business person chooses to pay themselves via salary. For every pound that someone pays themselves via salary, HMRC take a percentage of it as Income Tax.

We are all (subject to a few exceptions) provided with the personal allowance that has no Income Tax applied, but after that, it is taxed as per the table below

Income Tax Table

Our Hero's example (for the 2017/2018 tax year):

We have used Mike’s salary of £45,000 per year. In order to be accurate, we’ve also used the Normal Tax Code of1150L, which is what most employees will have as their PAYE tax code. We have also calculated the National Insurance for this salary and included it in the calculation.

So Mike's example looks something like this:

Salary Calculation