Best way to pay myself as a director
Discussion
I recently formed a company with a good friend and in April it will be registered as a limited company. We wanted to test the water first to see if it would be successful and it appears to be going in the right direction so we will register it.
Currently I am paid a very small wage which I top up from some equity we made from moving house. This money will run out in a couple of months so I need to work out a wage. The company isn't making enough as yet to pay me a decent salary and even when it is I only want to take as little as possible to grow the business. As it stands because I am paid so little my tax contributions aren't a lot but when I increase my wage they will obviously increase so to maintain my current wage (with the top up) I will need to pretty much double what I pay myself which isn't feasible.
I've heard people suggest taking a quarterly dividend which could be a good option. I've looked at things such as paying for my fuel through the business but I'm aware you have to account for private and business mileage. I don't do a lot of business mileage unless of course you include commuting to and from work. Whats the best way to do this, above board of course!
Currently I am paid a very small wage which I top up from some equity we made from moving house. This money will run out in a couple of months so I need to work out a wage. The company isn't making enough as yet to pay me a decent salary and even when it is I only want to take as little as possible to grow the business. As it stands because I am paid so little my tax contributions aren't a lot but when I increase my wage they will obviously increase so to maintain my current wage (with the top up) I will need to pretty much double what I pay myself which isn't feasible.
I've heard people suggest taking a quarterly dividend which could be a good option. I've looked at things such as paying for my fuel through the business but I'm aware you have to account for private and business mileage. I don't do a lot of business mileage unless of course you include commuting to and from work. Whats the best way to do this, above board of course!
Keep a spreadsheet of legitimate business miles and pay for fuel out of your own funds and once a quarter or whenever calculate what the business owes you. Keep spreadsheet for accountants records and make sure you pay yourself the 40p/25p a mile (look this bit up its 45p I think initially up to the first 10k miles the 25p
Edited by V6Pushfit on Tuesday 16th February 07:01
Roughly speaking:
Pay yourself £11k per year as PAYE (this will cover your NI contributions and you won't pay any tax on it)
Pay the rest in dividends:
First £5k tax free then anything between £5-£31k is 7.5% div tax (roughly £2k personal tax to pay on the full £31k divs (the company needs to make enough profit to pay you & its corp tax)
Anything over £31k diva is 40% tax (but weirdly works out at 32.5%
I think?!
Pay yourself £11k per year as PAYE (this will cover your NI contributions and you won't pay any tax on it)
Pay the rest in dividends:
First £5k tax free then anything between £5-£31k is 7.5% div tax (roughly £2k personal tax to pay on the full £31k divs (the company needs to make enough profit to pay you & its corp tax)
Anything over £31k diva is 40% tax (but weirdly works out at 32.5%
I think?!
Best I have found is:
Claim business mileage at 45p per mile (for the first 10,000 miles) - tax free.
Pay £8000 as salary - tax & NI free.
Pay balance as Dividends (can only be paid from profit though) - first £8000 tax free (£3000 from personal allowance and £5000 dividend tax allowance) then 7.5% dividend tax up to total income of £43,000.
Claim business mileage at 45p per mile (for the first 10,000 miles) - tax free.
Pay £8000 as salary - tax & NI free.
Pay balance as Dividends (can only be paid from profit though) - first £8000 tax free (£3000 from personal allowance and £5000 dividend tax allowance) then 7.5% dividend tax up to total income of £43,000.
Eric Mc said:
As has been hinted at above, the landscape for remuneration through limited companies is changing fundamentally on 6 April 2016.
Get an accountant.
This is the best advice. As the meme that perenially does the rounds on LinkedIn says, "If you think it's expensive using a professional, wait until you use an amateur".Get an accountant.
HMRC may not cover themselves in glory when it comes to taxing multinational companies, but they've been round the block a few times on personal remuneration.
) 
As a limited company we pay ourselves the 11k as wages each and the rest a dividends. HMRC will insist you use their RTPAYE online system or compatible accounting package for the wages. It isn't difficult to use unless you make a mistake.....and back it up regularly.
Agree with the other posters about travel expenses, sometimes a grey area but that's where a decent accountant will guide you. VAT may give you some head scratching moments too.
Another point regarding NI payments, if you don't have enough payments by the time you reach state pension age you will not get a full pension.
Keep all receipts and scribble a note on the back of what it's all about if it's not a regular supplier, 7 years down the line if questioned you will not remember. However, by then you hopefully will have a good business and a massive amount of paper to burn to start the wood burner or BBQ.
Never easy but wish you well in your new venture
Agree with the other posters about travel expenses, sometimes a grey area but that's where a decent accountant will guide you. VAT may give you some head scratching moments too.
Another point regarding NI payments, if you don't have enough payments by the time you reach state pension age you will not get a full pension.
Keep all receipts and scribble a note on the back of what it's all about if it's not a regular supplier, 7 years down the line if questioned you will not remember. However, by then you hopefully will have a good business and a massive amount of paper to burn to start the wood burner or BBQ.
Never easy but wish you well in your new venture
PurpleMoonlight said:
Best I have found is:
Claim business mileage at 45p per mile (for the first 10,000 miles) - tax free.
Pay £8000 as salary - tax & NI free.
Pay balance as Dividends (can only be paid from profit though) - first £8000 tax free (£3000 from personal allowance and £5000 dividend tax allowance) then 7.5% dividend tax up to total income of £43,000.
IMHO most of the above is good, but, beware not paying any NI at all. Can affect things like government pensions etc. I found it prudent to pay myself a salary more than the lower limit for NI, but no more than my personal tax code gave me tax free.Claim business mileage at 45p per mile (for the first 10,000 miles) - tax free.
Pay £8000 as salary - tax & NI free.
Pay balance as Dividends (can only be paid from profit though) - first £8000 tax free (£3000 from personal allowance and £5000 dividend tax allowance) then 7.5% dividend tax up to total income of £43,000.
KevinCorvetteC6 said:
IMHO most of the above is good, but, beware not paying any NI at all. Can affect things like government pensions etc. I found it prudent to pay myself a salary more than the lower limit for NI, but no more than my personal tax code gave me tax free.
You are awarded NI credits above £5,832 without paying any NI. Only above £8,064 do you actually pay NI.Gassing Station | Business | Top of Page | What's New | My Stuff