Confused about PAYE - Sole Director of Ltd Company requires help!

danthedoors

Hi all,
I recently set up a limited company providing research services - I am the director and sole employee. In the first two months I have earned around £12,000 which is sitting in the business bank account earning no interest. My accountant (a friends brother) recommended that I paid tax through PAYE so I registered for this. For my first wages I paid myself £750, of this I had to pay £49.40 PAYE, £32.45 employees NI, and £37.76 employers NI. I work from home and virtually all of my expenses are related to my business but my accountant doesn't seem to take this into account when working out my tax etc.

I have a number of queries so please feel free to answer any!

1. Is it necessary to do PAYE in my circumstances? I have been told not and think it may be better to just sort the tax at year end - at least this way I can put aside the taxmans money in a savings account earning me interest
2. As far as I understood NI contributions were compulsory when your earnings were a certain level but a friend of mine who also owns his own business has told me that you can opt out (obviously with ramifications on later pensions) - is this true?
3. I was hoping to pay myself more money (i.e. around £1500-2000 p/m) and put surplus away in an ISA but if I am taxed/NI'd at the same level I won't be saving anything
4. How/when do I reconcile my expenses (i.e. rent, phone bills, electricity bills etc.) with my tax?
5. Should I be paying my employers NI through my personal account? Surely this should come from the business account?

Any advice would be much appreciated.
Dan

fengirl_2

1. As a director, you are an employee and subject to PAYE on all your drawings from the company. There is no choice over this. But you dont have to draw money from the company - you could keep the money in an interest bearing company account and pay yourself dividends once or twice a year.
2.You are only exempt from class 1 NIC's on your drawings if you are paying over the max at your main job.
3.You can pay yourslef whatever the company can afford, but it has to be subject to PAYE and then you can put it in an ISA.
4. You can charge these expenses to the company and they would be included in the end of year accounts so you receive relief from CT on these costs.
5. Yes, employer's NIC is charged through the company. Employees NIC is your liability.
I am surprised that your accountant has not explained all this to you as its fairly basic.

Pennywise

Get yourself a proper accountant asap. You are taking advice from "a friend" on one hand and "my accountant, a friend's brother" on the other hand. No wonder you don't know where you are with it.

An accountant will explain the optimum level of salary to pay and the procedure for taking dividends. Unless you are caught by IR35 (ask a proper accountant what this is) you needn't pay a wage of any more than £450 per month, on which there is no tax nor NIC. You can then pay dividends (at any frequency you like, they don't have to be once or twice a year) as long as you follow the right procedure (i.e. managment accounts to show available profits, directors meeting to approve the dividend and dividend voucher). At £450 per month, even though you aren't paying any NICs you still get a "credit" towards both the basic state pension and the earnings related state second pension.

Re expenses, again, an accountant will tell you exactly what you can claim according to your personal circumstances, and how you can claim it.

Please don't listen to friends, family, or someone "down the pub". It's your business and livelihood at stake. I've seen far too many people who've lost hundreds or even thousands of pounds in tax (and tax penalties) by relying on pub-talk.

At the end of the year, you'll need an accountant to do the company accounts, tax returns, etc., and they'll charge a lot less if they have been involved right from the beginning in getting you started properly - if you hand them "a mess" they'll charge a lot more as they'll have to spend more time sorting it out. In the long run, a good accountant will save you far more than they charge.

kazwookie

Get a new accountant asap.

Others posters are correct IMO