Self-employed. What really is my salary before tax?

smartmove07

I am self-employed and my salary is made up by paying myself a small salary PAYE and then making the rest up by taking directors dividends. Basically, I pay £3500 from my business account to personal account each month and then my accountant deals with the income/ni/dividend tax. I am soon going to be applying for a mortgage and am unsure what my "salary before tax" would be. Can I just work out what it would had I been paid PAYE for the whole lot or do I need to calculate it some other way? Any advice appreciated.

PS. The site below suggests that had I been a normal employed I would be on approx. £62k per year before tax.

http://www.i-resign.com/uk/financialcentre/tax_calculator_tool.asp?txtGrossSalary=62000&radAge=1&txtStudentLoan=0

dejongj

Probably more straight forward than you would have thought Your salary before tax is your salary that you pay yourself....So if you pay yourself £1000 per month you realistically write yourself a cheque for about £835 or there abouts, the rest goes to HMRC and then on top you also have to pay employers contributions....Your accountant should give you the exact amounts....

Don't even start to think that dividends are salary, they are just other income...The moment you treat them as salary you'll have to pay a lot more tax....

Just my simple view...Depending on how long you have been in business, mortage companies do take dividend income into account....

smartmove07

Yeh, my net pay as shown on my payroll slip is about £433 per month and then the rest is made up form dividends. I am just nervous that a mortgage company might only see that I earn £6 or 7k a year where infact it is much much more than this when you look at what actually arrives in my personal account each month.

dunstonh

You are not self employed if you are a director of a limited company.

The mortgage application will allow you to declare your income which includes dividends and salary. They will also probably ask for the last 3 years accounts to verify it.

smartmove07

But what if my salary has only dramatically increased in the last 12 months, the 2 years prior to that would show a total income of about half what I will have in this year. How do I stand then? I am just worried that a lender wont be willling to lend me enough if they're taking an average or something of the last 3 years.

smartmove07

I should also add that I was under the impression that if I owned more than 25% shares in my company (I own 50%) then a lender would class me as self-employed?

Thanks.

LittleVoice

You own 50% of the company. Who owns the other 50%? Are the same dividends paid to the other 50% holding?

smartmove07

Yes, the other shareholder earns exactly the same amount and its paid in the same manner.