Do we have to take a salary?

eclipse1989

Hello!

Have been browsing the forum and online for a while but couldn't find a definitive answer.


My partner and I are looking to start our own business in the very near future. To begin with, it will only be at evenings/weekends and we will both continue to work full time for the time being.


My question is, for the first year or so whilst we are getting the business off the ground, will we need to take a salary? Financially we don't need to as our salaries from employment are reasonable and we would like to keep as much money in the business as possible to help it grow.


It doesn't seem an issue in my eyes however just want to be sure on the legalities, the last thing we want is to be screwed by HMRC.


Just to add, it will be a limited company that isn't VAT registered if that makes any difference.


Thanks all!

firefox1956

The definitive answer will come from your accountant.
You do have one ??

bengalknights

As a limited company a director does not need to take a salary only a remuneration

Employees do have to be paid the minimum wage though

00ec25

do you mean "partner" as in co-habiting? If you have a limited company then you are not partners, you are, I assume, both shareholders of the company (and possibly also joint directors of it?)

the company will pay corporation tax on its profits, there is no escaping that obviously

the company's employees/directors (ie you pair) are not required to take a salary, so that would mean the company's profits are a bit higher (salary would be cost and so lower the corporation taxable profit) but would also mean the money sits in the company for as long as you leave it there and has no impact at all on either of your personal tax positions

if you decide to take money out of the company in the future your accountant can advise on the most tax beneficent way to do so. Typically that will mean a combination of salary and dividends

eclipse1989

bengalknights wrote: »

As a limited company a director does not need to take a salary only a remuneration

Employees do have to be paid the minimum wage though

Thank you - we will both be directors with no employees.

00ec25 wrote: »

do you mean "partner" as in co-habiting? If you have a limited company then you are not partners, you are, I assume, both shareholders of the company (and possibly also joint directors of it?)

the company will pay corporation tax on its profits, there is no escaping that obviously

the company's employees/directors (ie you pair) are not required to take a salary, so that would mean the company's profits are a bit higher (salary would be cost and so lower the corporation taxable profit) but would also mean the money sits in the company for as long as you leave it there and has no impact at all on either of your personal tax positions

if you decide to take money out of the company in the future your accountant can advise on the most tax beneficent way to do so. Typically that will mean a combination of salary and dividends

Hi 00ec25,

Thank you for your reply.
My partner (wife) will be the other company director, we will both be directors and shareholders within the company.
Your response is much appreciated. We don't have an accountant yet, it is one of the next things we will do however trying to do as much research as possible ourselves so we have some idea of what we are talking about

Cheers
SG

antrobus

eclipse1989 wrote: »

...My question is, for the first year or so whilst we are getting the business off the ground, will we need to take a salary? Financially we don't need to as our salaries from employment are reasonable and we would like to keep as much money in the business as possible to help it grow.

There is no requirement to take a salary.

Directors are office holders, and not employees, and the NMW does not apply.

https://www.gov.uk/national-minimum-wage/who-gets-the-minimum-wage

But you'll get better advice by hiring an accountant.:)

fishybusiness

2 directors will mean you need Employers Liability Insurance - non negotiable I'm afraid, it is the law.

firefox1956

You should have taken on an accountant BEFORE you decided to set up a Limited Company......it might not have been the best thing to do.
( Bit late now though !! )

fishybusiness

You should have taken on an accountant BEFORE you decided to set up a Limited Company.....

OP uses future tense defining what they plan to do, not what they have done.

reason2

"fishybusiness Old 28-06-2017, 6:00 PM


2 directors will mean you need Employers Liability Insurance - non negotiable I'm afraid, it is the law."


Are you sure?

"If you have employees, contractors, casual workers or temporary staff, you are usually required by law to take out employers’ liability cover, to deal with any claims from employees who’ve been injured or become seriously ill as a result of working for you."

2 directors are not employees or contractors or casual or temporary workers.

My business has 3 directors and no other staff and we have been told we do not require ELI

reason2

fishybusiness wrote: »

2 directors will mean you need Employers Liability Insurance - non negotiable I'm afraid, it is the law.

the gov website answers my own question

exempt are
■ companies employing only their owner where that employee also owns 50% or
more of the issued share capital in the company.

So OP would be exempt too