Directors' Salaries

This Overheads code records the cost of directors' salaries incurred in running the business. As an expense account, it normally carries a debit balance: debit entries increase the balance (recording new costs) and credit entries decrease it (for example, correcting an error or a refund received).

Real-world examples

Owner-managed micro company

A sole director of a small consultancy often draws a modest salary — say £750 a month — set deliberately near the annual Class 1 National Insurance threshold, topping up income with dividends instead since dividends attract neither employer nor employee NI. The entry is a debit of £750 to 7001 (Directors' Salaries) and a credit of £750 to 1200 (Bank Current Account); there's no VAT on salary payments. This low-salary, high-dividend pattern shows up across owner-managed businesses of every sector, so it says more about company structure than the industry involved.

Multi-director trading company

A trading company with three working directors pays each a full market-rate salary reflecting their operational role, rather than the minimal-salary approach a single owner-director might use — a combined monthly cost of £14,500 posted as a debit to 7001 and a credit to 1200. Because National Insurance and pension auto-enrolment both apply in full at this level of pay, the real cost to the company is materially higher than the salary figure alone, which is why 7012 (Employers N.I. — Directors) and 7007 (Employers Pensions) are usually tracked alongside it rather than folded into one number.

Commonly confused with

Because code 7000 (Gross Wages) sits right next to this one in Overheads, it's a common mis-posting target. Code 7001 is specifically for directors' salaries, while 7000 covers gross wages — similar in nature, but keeping them separate is what makes the overheads section of your management accounts meaningful rather than a single lumped total.

What a mis-posting here costs you

An error posting to Directors' Salaries won't change total overhead spend, but it will distort the overheads breakdown that's usually reviewed line by line each month to spot cost creep.

Other codes in Overheads