Running payroll as director - with other income - help!

semma19

Hi!
When this tax year started I was working as a sole trader. A few months later I stopped doing that, set up a limited company and instead am now working through that. I am also a landlord with rental income.

My sole trader income has already used up my personal tax allowance for the year, and I have kept a pot aside for NI when I do my self-assessment (as well as for tax on the income that exceeds the allownace). My rental income this year will also likely exceed the threshold for NI, although this is obviously not yet guaranteed (if I'm understanding rental income and NI correctly).

I now want to pay myself my first salary as a director but I am feeling pretty confused about how much tax and NI I need to pay! I have set my salary between the Lower Earnings Limit and the next level up so as to get an NI 'stamp' for the year - as I understand it, this means no NI is deducted from my pay? But as an employer I don't contribute either? However, what about tax?! I understand that normally directors set themselves low salaries to stay within the tax allownace however as above I've already used that up. I'm happy with a low salary due to the NI benefits and also due to being able to pay myself dividends. But for tax am I correct in thinking I take all my income into account (sole trader, landlord and payroll from my new company) and work is out that way? And is that 'to date' or for the predicted year?

anselld

You need to separate out yourself and the Limited Co. Separate tax entities.

The Limited Co has no knowledge or interest in your earnings or NI elsewhere. You simply enter your tax code into the PAYE software and it calculates tax and NI (if appropriate) based on that tax code.

Inevitable that will result in you paying too little tax (as an individual) which will be resolved when you complete your self assessment at the end of the year.

00ec25

NI
1. rental income is not "earned income" for the purposes of NI. It is completely disregarded for NI. You could voluntarily choose to use the cash you have received (after income tax deduction) to pay Class 3 voluntary NI contributions, but that would be just plain daft given your overall situation

2. sole trader. You would be wise to pay Class 2 NI for the period to the date the sole trader ended so that you have a continuous record for state pension to that date. Whether you have to pay Class 4 on top of that depends on your sole trader profits for the year to date, they may be below the threshold?

3. company, as this is now your sole source of income you need to run a payroll which puts you above the lower earnings limit so you get an NI credit.

income tax
since your sole trader + rental profit > personal tax threshold there is no point at all in paying a salary which is more than the absolute minimum needed to get the NI credit. Just take everything else as dividends otherwise you will be pointlessly paying income tax you can quite legally avoid.

I assume you are trying to avoid paying an accountant? This is very basic tax planning advice that you would have got from one of them. Who is doing the company accounts? Please don't try and DIY those given your apparent lack of knowledge. Go get an accountant, get them to give you an overall tax check, and pay for your accounts to be done for you until you know what you are doing.

BoGoF

Can only echo what has been said. Get some professional help before you make a mess of things.

semma19

I will be getting an accountant to do my end of year accounts for the company. I plan to do my own self-assessment - need to submit one for last tax year, which is simpler, so that will give me a heads up as to what to expect.
This is helpful, thanks, so I can roughly know how much to keep aside for additional income tax to pay in a lump sum. I'm aware of the dividend tax rules too. I have a separate bank account for tax etc to be paid at a later date so it's no problem for me to be organised. I'm not going to pay an accountant on a monthly basis because running payroll and dividends is really not that complicated. I was just confused because of my other sources of income this tax year.