Limited company and director's wage??

djbfp

I have a small limited company (that doesn't earn too much so probably won't pay much tax at all) and am the only director and don't employ anyone. Does anybody know if there is a limit (or recommended amount re tax purposes) of what to pay yourself? I've never paid myself officially and am not sure what dividends are and if I should be doing that or if I should do drawings/salary. I have tried to do research and can never find an answer on if you have to, when you do it (each month, at the end of the tax year??).

Any help would be much appreciated.

MatyMoo

I would always recommend that you get yourself a good accountant as they can save you far more in tax than they actually cost.

I know my OH was told that it was more tax efficient to pay himself a small monthly salary and to take the rest as dividends which he could draw when he wanted to, but it could be different for other types of business or someone in different circumstances.

ILW

Generally pay salary up to tax allowance and the rest in dividends. But as said before you will need an accountant anyway, unless you are confident with such things as submitting corporation tax returns and yearly accounts to Companies House etc.

paulwf

OP you might get a better response on the small biz forum as some accountants hang out there.

Generally the most tax efficient method is to take a "directors salary" where you accrue pension credits but don't pay tax or national insurance, this year the threshold is £136 a week so pay yourself £135.90 a week. You then take the rest as dividends to keep tax down. You can only pay dividends if the company makes a profit though.

That's a very basic summary and tax isn't my strong point so please get an accountant, they will do your year end and help you stay compliant as well as saving you money.

BTW the sooner you can start paying yourself a directors salary (even if you don't draw the money out the business) the better, otherwise if you have a surplus and want to take it out of the company you'll have to draw it as a dividend and pay tax.

Mudd14

We process £136 pr week or £589.00 per month or £7068 per annum to ensure NI is credited but it doesnt attract tax or NIC deductions. the rest drawn in dividends.

djbfp

Thanks - I had actually heard a similar amount being paid but couldn't remember how much it was and if that was the salary, so that does make sense.

I will also look into getting an accountant - as its a small business and I'm basically self-employed with not many expenses, I was going to try and do it myself, but it might be better to get one!

Thanks everyone for your advice.

InsideInsurance

An accountant will be the best route to go. There are some circumstances (such as being a contractor inside IR35) which can restrict the practices of very low salary + high dividends.