Director's Payments etc

ilikeherring

Hi folks,

I'm looking for a bit of advice please.

We are company directors and our accountant has advised us to pay ourselves £675 (or the minimum payment once the new tax code comes out) and then quarterly dividends.

We won't be able to survive on £675 per month because of rent, bills etc - how do other people manage it? I need closer to £900 for the basics.

How do you decide what your dividends should be? Is it a set amount, or a percentage of profits?

Any advice very much appreciated!

Wywth

ilikeherring wrote: »

Hi folks,

I'm looking for a bit of advice please.

We are company directors and our accountant has advised us to pay ourselves £675 (or the minimum payment once the new tax code comes out) and then quarterly dividends.

We won't be able to survive on £675 per month because of rent, bills etc - how do other people manage it? I need closer to £900 for the basics.

How do you decide what your dividends should be? Is it a set amount, or a percentage of profits?

Any advice very much appreciated!

Talk to your accountant. Isn't that what you allegedly pay him for? :cool:

ilikeherring

I wondered how long it would take to get the first snide response.... :T

gb12345

ilikeherring wrote: »

How do you decide what your dividends should be? Is it a set amount, or a percentage of profits?

Any advice very much appreciated!

I used to take the max salary below NI (and so did my wife), then we basically took sufficient dividends every quarter to cover our expenses for 3 months. Of what was left a percentage went into a corporate savings account to cover corp tax and accountants fees and the rest went into another savings account to cover lean periods (or for emergency dividends if an unexpected expense occurred).

chalkie99

ilikeherring wrote: »

Hi folks,

How do you decide what your dividends should be? Is it a set amount, or a percentage of profits?

It is neither a set amount nor a percentage.

You can take them as you wish but they MUST be from CLEARED profits so you can't just dip into the account when taxes and other liabilities have not been taken into account. The other thing to remember is that they must be paid to all shareholders in proportion to the amount of shares held. So, if there are two directors who are the only shareholders and the shares are divided equally between you then you must pay each identical dividends.

One other option might be to take a directors loan as required, You could, theoretically, dip into the bank balance without worrying about the cleared profits although you do need to pay the loan back after nine months to avoid extra taxes.

Finally, although you describe the response from Wywth as "snide" it is really correct as the accountant is charging you for professional advice and is the right and proper person to explain it fully as, from reading these boards, an awful lot of people rush into forming limited companies before understanding the implications and find themselves in a hole.

ilikeherring

Thanks Chalkie - however if we were all to follow Wywth's logic, there would be no such things as forums because we'd all be talking to people that we pay to give us advice. I'm asking for real-life examples and generally just have a blether with folk about their experiences rather than just a few emails flying back and forth and a 1 hour meeting here and there with the accountant.

Cheers

trailingspouse

We operate in a similar way, taking the maximum we can per month without being liable for tax/NI. You can take dividends more frequently than quarterly if you really need to, but it's best to try to pay quarterly (if you pay yourself monthly, especially if it's the same amount each month, it starts to look suspiciously like a salary). The trick is to wait until there is sufficient in the account to pay a dividend that will meet your needs for 3 months (whilst not leaving your business short of funds), even if that means economising in the short term. We were advised to never take more than 2/3's of the balance out of the business account, but I think it's more important to ensure you have enough remaining to cover all foreseeable expenditure and a bit over. You are of course holding proper board meetings in order to vote your dividend payments through - you should be examining your current financial position, future liabilities and so on in order to make this decision.