Director of Limited Company & Only Employee - Salary Options?

alovesey

Hi there, I wondered if anybody could advise me on how I should go about paying myself as a company director.

I set up a limited company back in August 2009 so that I could do freelance design work (as most companies were asking this as a necessity). I have only recently had a few weeks work and my company is finally showing some profit and I would like to pay myself this money. I am the director and the only person (likely) to work for this company.

If I set myself up on the payroll as the sole employee I presume I have to pay NI contributions as both ee and er plus income tax, which seems expensive for the money I have rec'd. I cannot determine what work I will have in the future, so I really cannot salary myself (as at the moment I have no work on the horizon) and have made only 2K. I really need to keep my NI conts up straight too.

Any ideas or suggestions as to how to pay myself this money? Or is my set up not viable for using a Ltd Company as a vehicle for such on & off work? I am very confused and can't afford an accountant, so any help would be very appreciated!

HappyMJ

Pay yourself a minimum of about £110 pw. salary even if you are not making a profit or even working. This will cause a small amount of NI and Tax to be paid as an employee then the rest can be paid as a dividend.

edit: this assumes you are not working elsewhere or claiming benefits. It does cause a short term loss in the company books but will be recovered later as the work you do starts generating real income.

GreyhoundAngel

Hi,

This is quite a specilist area from a Tax point of view - you really do need the advice of a qualified Accountant.

From what I have gleaned whilst research options for myself, there are some different options available which combine things like paying yourself just over the yearly tax allowance (obviously spread out over the 12 months), and shareholder / director dividends which can be paid monthly / quarterley or annually (but once chosen have to be consistant in method) - But there are all kinds of variables and things you have to take into consideration.

I am NOT an expert on this, and as I said - I came accross references to this kind of information whilst researching the best way forward for me (ie sole trader or ltd company).

Also if i remember rightly, a ltd company is totally different to being a sole trader in respect of being able to make "drawings" on money from the "company" account.

You could try contacting Business Link - they may well be able to advise you.

Hopefully, someone far more knowledgable will come along soon with an answer for you.

G:A

Bean_Counter

HappyMJ wrote: »

Pay yourself a minimum of about £110 pw. salary even if you are not making a profit or even working. This will cause a small amount of NI and Tax to be paid as an employee then the rest can be paid as a dividend.

Before paying dividends you will need to make sure that you have sufficient retained earnings to legally pay the dividend. If you are not working / making a loss this would be unlikely.

alovesey

Many thanks for your replies. It really is so confusing sorting out this tax situation etc.

The situations now changed a fair bit & I wondered if anyone had any further advice.

I have now taken up a full time job rather than freelancing through my company anymore. So I know that I have a definite amount of cash that I need to pay myself. It only totals around about £3,800 over 2.5 months. Any idea the best way to pay this out of the company? I doubt I will be putting anything through the company in the future.

Cheers for your help.

Rolo_Tomasi

Don't forget you will need to settle your corporation tax liability out of any cash left in the business.

The most tax efficient way to extract the money will depend on your other income and any tax already paid over the tax year. It may be beneficial to wind up the company or it may be best to leave it dormant.

I think that there are too many variables in this instance to offer advice and suggest you see an accountant. They probably won't charge too much and you can be sure that they are offering advice knowing your whole situation.

nickj_2

i have a ltd co and draw just over 470 per month as salary and the rest i draw as dividends - i agree with other posters - you need to see an accountant just to make sure you are doing everything right ,