How do I pay myself

If anyone tells you that there is a set percentage as to how much money you will take home with you they are lying. It really depends on your company’s expenses (see expenses guide). and your circumstances and needs which will affect how much money you take out of your business on a monthly bases. Many people include the “reimbursement of expenses” as a way of increase the money you withdraw to make it sound a much higher figure. The way we recommend you pay for the companies expenses is by using the business bank account. Why lay out money when it us in the bank already. This is how most normal company’s work and you are trying to demonstrate to the HMRC you are in business as a legitimate contractor.

There are 3 ways to withdraw money from your company.

1)PAYE

You may wonder why you need to pay PAYE, as you are now a limited company contractor. The simple truth is even as a director of a company, you still need to be paid a salary. Some people will tell you just to take out the personal allowance and not to pay any National Insurance. We normally recommend that you think about setting yourself a salary of around £12,000-£15,000 a year. This means that you pay a little National insurance for both the employee and employers. This then demonstrates to the HMRC that you are running the business in a correct manner. This would help if you ever received an IR35 investigation. Also by paying an amount of National Insurance, you will not be written to by the HMRC saying that you will not be entitled to a full state pension, as you have not fully contributed to the system for the relevant number of years. Also if you ever need to claim state benefits you will have paid into the system so you will be able to draw something out. Do not worry about paying this on time each month, as with our clever system we help to make sure it is paid on time and in full. This way you avoid fines, penalties and a nasty surprise in April/May when you get a large PAYE bill.

2) Dividend

After the company has paid its corporation tax there is an amount of money that the shareholders may take out off the business as dividend. This is tax at a much lower rate and does not attract any National Insurance. The rate for a lower rate tax payer is a notional 10% rate ( i.e. is on the tax return but no additional tax is paid). Once you are over this amount then you will need to pay an additional 22.5% on your personal tax return. Please check “what taxes do I pay” for rates If you do not need to take the money out of the company, the most tax efficient way of saving on personal tax is by leaving the money within the company, This money can then be taken out in later years, and allows for basic tax planning.

3) Pensions

This is one of the most effective ways of taking money out of your business. At the moment, it does not attract a National Insurance payment and helps to reduce the company’s profits and reducing the corporation tax bill. This is capped but the rules change all the time. We can help you arrange a company pension system. We are not pension experts, but can refer you to someone that is.

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