Paying yourself from a limited company
Discussion
Not sure if this should be here or in finance ...
My wife has a limited company that is starting to make a bit of money.
The accounts have just been completed for 19/20 and the company owes her some money as a directors loan? (I think it was).
She was to take out circa £300 per month (she also has a PAYE job).
My understanding is she can take that much in dividends but these are not deductible from the eoy business profit where as a salary would be?
So the choice is;
Dividends
Salary
Dividend and salary
Can you just take it all in one lump sum or does it have to be monthly?
She has asked the accountant but he, rightly, isn’t giving advice on the business side of it.
My wife has a limited company that is starting to make a bit of money.
The accounts have just been completed for 19/20 and the company owes her some money as a directors loan? (I think it was).
She was to take out circa £300 per month (she also has a PAYE job).
My understanding is she can take that much in dividends but these are not deductible from the eoy business profit where as a salary would be?
So the choice is;
Dividends
Salary
Dividend and salary
Can you just take it all in one lump sum or does it have to be monthly?
She has asked the accountant but he, rightly, isn’t giving advice on the business side of it.
Precisely. If the company already owes her money - then she can withdraw that amount from the company tax free.
The dividend/salary debate is a lot more complex compared to a few years ago -
Dividends -
special additional tax free amount up to £2,000
no National Insurance
Income Tax rates of 7.5% (basic rate) 32.5% (higher rate)
not allowable as a company cost when calculating Corporation Tax
Salary -
taxed under PAYE
subject to both Employee's and Employer's National Insurance
allowable as a company when calculating Corporation tax
Dividends are looked on as investment income rather than earned income so may not be as useful to someone who wants to pay into a pension fund.
The dividend/salary debate is a lot more complex compared to a few years ago -
Dividends -
special additional tax free amount up to £2,000
no National Insurance
Income Tax rates of 7.5% (basic rate) 32.5% (higher rate)
not allowable as a company cost when calculating Corporation Tax
Salary -
taxed under PAYE
subject to both Employee's and Employer's National Insurance
allowable as a company when calculating Corporation tax
Dividends are looked on as investment income rather than earned income so may not be as useful to someone who wants to pay into a pension fund.
Lord.Vader said:
She has asked the accountant but he, rightly, isn’t giving advice on the business side of it.
I know others have said it but wow. Giving just that kind of advice is pretty much equal to doing the accounts for any accountant providing services to small business. I hope they were cheap.I understand they might not want to get involved with considering other income streams but they should really advise the basics.
If it works for her pension contributions are one of the few benefits to running a ltd left since dividends got hammered.
They are deductible from profits so reduce any corporation tax due. Therefore well worth considering further especially if she has another income stream. Although with the accounts just done will be a consideration for this new year and not what has already gone.
Edited by trickywoo on Monday 12th October 21:35
So, there are two people with the same name at the accounting company ... wife has now been passed to the right one who is very helpful ....
So ... if she has another PAYE job will any salary from the ltd company need to have employer contributions and NI?
Does that means it’s simpler to just take dividends at 7.5% + 19% corporation tax?
Also can pension contributions be greater than salary? So say £x pm dividends and £x pm pension contribution with £0 pm salary?
Accountant asked too, but assuming no answer until Monday.
So ... if she has another PAYE job will any salary from the ltd company need to have employer contributions and NI?
Does that means it’s simpler to just take dividends at 7.5% + 19% corporation tax?
Also can pension contributions be greater than salary? So say £x pm dividends and £x pm pension contribution with £0 pm salary?
Accountant asked too, but assuming no answer until Monday.
May not be gospel, your accountant should advise!
Wife's salary from her company will attract NI
If the dividend paid plus salary takes your wife into 40% income tax band, tax on dividend becomes 32.5% for that part
If your wife has a private pension scheme that will accept stand alone payments, the company can contribute directly up to £40K per fiscal year. Her personal contributions can't exceed 80% of salary. If the company pays, it offsets the CT bill too
If the company repays the director's loan, it's prudent to document what the loans were for originally. If your wife charges her company interest on the loan, it will be classed as income for tax
Wife's salary from her company will attract NI
If the dividend paid plus salary takes your wife into 40% income tax band, tax on dividend becomes 32.5% for that part
If your wife has a private pension scheme that will accept stand alone payments, the company can contribute directly up to £40K per fiscal year. Her personal contributions can't exceed 80% of salary. If the company pays, it offsets the CT bill too
If the company repays the director's loan, it's prudent to document what the loans were for originally. If your wife charges her company interest on the loan, it will be classed as income for tax
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