Paying yourself

The closest topic to any contractor’s heart!

Let’s clear up some myths right here.

A Director, that does not have a contract of employment between themselves and their Limited Company, does NOT have to adhere to the minimum wage legislation, so pick a salary amount that you are happy with and stick to it.

Salary – We still cannot agree, here on the cloud, what the correct level of salary is for a Director and we don’t think there is a ‘correct’ answer. Some Directors like to pay no PAYE nor NI, some like to pay just National insurance (to contribute to the government’s state pension) and some like to pay PAYE and NI. Discuss with your accountant all the pros and cons and decide what’s best for YOU!!

Dividends – Arguably the most tax efficient way of extracting money from your company, and as stated above, you need to work out the profits after tax to find out how much you can take. If you/your accountant complete monthly management accounts, then there is absolutely no reason why you cannot take monthly dividends.

When discussing your ‘tax planning’ exercise with your accountant make sure you disclose ALL sources of personal income so that they can recommend a tax efficient monthly amount for a dividend and salary.

TIP – Work out your monthly personal outgoings, this will give you a great starting point to work out how much to take from the company via the dividend/salary structure.
Remember the company has to pay its on taxes on profits, so do not suck the company dry!

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