lowering personal tax

mrsingh

Hello everyone,

I've tried doing a search for this and couldnt find anything that answered the query I have & I was not sure whether this query would be best answered in the Small Business Forum or here (board moderators please move as necessary)...

I want to find out what is the most tax efficient way to pay myself? My understanding (and I could be wrong about this) is that in the USA, ltd company's pay tax AFTER all expenses are deducted, meaning that all costs such as salaries, bills, etc are paid first and whatever is left is taxed. Can someone please confirm if this is the case here in the UK also?

Secondly, If I was to set-up a Ltd company, what would be the best way to pay myself in terms of lowering the amount of tax I pay?

Lokolo

Yes you can do this but whoever you work for must let this happen. So have a contract with your company. There is more job risk with this though in that contracts are usually short term.

Company can then deduct expenses. Obviously at resonble cost. So travel, food lunches etc.

Money can then be paid to you from your company as dividends (which is less than income tax).

Well this is the way I believe it's done. A lot of people I work with are contractors and do it this way.

mrsingh

Lokolo wrote: »

Yes you can do this but whoever you work for must let this happen. So have a contract with your company. There is more job risk with this though in that contracts are usually short term.

Company can then deduct expenses. Obviously at resonble cost. So travel, food lunches etc.

Money can then be paid to you from your company as dividends (which is less than income tax).

Well this is the way I believe it's done. A lot of people I work with are contractors and do it this way.

What if I ws to set up the company myself and be a director? Can i then claim expenses and pay myself? If my understanding is correct, if i pay myself a salary I will need to pay tax and NI, but if i claim my expenses and salary as a dividend then i dont need to pay any taxes or NI? Is this correct?

Lokolo

mrsingh wrote: »

What if I ws to set up the company myself and be a director? Can i then claim expenses and pay myself? If my understanding is correct, if i pay myself a salary I will need to pay tax and NI, but if i claim my expenses and salary as a dividend then i dont need to pay any taxes or NI? Is this correct?

Not entirely correct.

You will pay dividend tax depending on your income rate. Just not income tax.

You will also have start up costs, accounting costs etc. and every year will need to do a self assessment.

I am not entirely sure about the process though, I just know bits and bobs and know that it can be done.

Firefox1975

You need to register the company for PAYE. Then pay yourself a salary below the level of NI and Tax. Circa £7,000.

The rest of your salary can be drawn in dividends - but they should only be drawn against existing company profits. These will need to be declared on your personal tax return on which you will still pay tax.

go and see a tax accountant.

anandp

I'd strongly advise getting an accountant as you could easily be missing some fundamentals like the zero-flat rate VAT scheme if you're a contractor and more.

A good accountant for this kind of thing will only set you back a max of £60 per month!

chrismac1

I agree with the last post, I've sent you links to answer as simply as possible the questions you've asked. Armed with these, you can make appointments with local accountants - many of whom will be desperate for business, there's a recession on! Also for many people - myself included when I set up in business! - the best option is to do sole trading for a while and then "go limited". This can be very tax-efficient on a number of fronts, especially for people who have other income such as PAYE income in the year they start trading, or for people whose businesses get quite successful (and therefore valuable) quite quickly.