Drawing a salary from a Ltd Company

[Kentishman]

I am just about to go from sole trader to Limited on 1st April. I have just set up a Ltd company bank account. Until now, the Ltd company has been set up but dormant. My annual profits are about £15,000 p/a. I also have a job employed by another company from which I receive about £13,000 p/a uner PAYE. My question is: how do I go about drawing a salary from my Ltd company ? I need to pay my bills and live off the income from the Ltd company operation, including fuel costs....should I just pay these bills from the Ltd company bank account ? Can I do this straight away ? (My personal tax allowance is used up in my employed job. I am a one man band being the owner and sole director). Thanks for any help.

[Spongebob]

I'm not an accountant but it's always seemed sensible to me to keep business and private expenditure seperate.

Transfer the money you need to live on from your company account to your private account on a weekly or monthly basis and think of this as your 'wages'. Your accountant will help you to decide what proportion of this money should be classed as salary and what should be classed as a dividend. The technicalities of this are very dull but will get your bean-counter all excited.

The nub of it is that when you were self-employed you had to declare your profits to HMRC and pay tax on them. Your drawings were taken out of these profits and so were not taxed at the point at which you took them.

As a director of a company you pay tax on your monthly salary by way of PAYE, just like normal people in proper jobs do. Your accountant will try to minimise your tax liability though, by having you pay yourself a proportion of your 'wages' as dividends instead of salary.

Speak to your accountant about it. He will drone on for a hour telling you what I've just told you but try to look interested. In the end do what everyone else does and just let him get on with it.

Road fuel can be a tricky one. If the car or van belongs to or is leased by the company then pay for it out of the company bank account; if the vehicle is yours and you claim a milage charge then pay for the fuel yourself.

I'm sure most of us get things muddled up occasionally though. If I were to find myself with a trolley full of groceries at Sainsburys and with insufficient funds in my private account, I would just use my company debit card instead and let my accountant sort it out later. That's what we pay 'em for!

:)

[Kentishman]

Thanks for that. I plan to start operating on 1st April 2010 but have not yet seen an accountant or set up PAYE. Is it possible to simply deposit my cheques into the Ltd company bank account, start taking out all the proceeds weekly from April (to live off etc) and see an accountant later in the year (when I can afford it) to sort out the salary / dividend / PAYE details ? I guess not as I assume PAYE needs to be set up from 1st April and can't be back dated....Thanks

[KM-Tiger]

I plan to start operating on 1st April 2010 but have not yet seen an accountant or set up PAYE.

In which case do that straight away.

Quite likely you don't want to pay a PAYE salary from your Ltd if your personal allowance is already used up by your other employment. You do not have to draw a PAYE salary as a director. The usual reason for doing so is to take advantage of the personal allowance and get the NIC credits, where you have no other employment.

As regards paying for personal expenditure from the Ltd, if you create a b*gger's muddle of personal and company expenditure you'll pay through the nose for your accountant's time to sort it out, and most accountants don't like that sort of work. The odd transaction is OK, but not a lot of them.

So see that accountant now and get things set up properly, and take the advice on how to avoid tax.

[nikkimanchester]

Hi Kentishman

There is an accountancy, member of this forum too (that's how I found about them), which will sort out everything for you for about £30 per month. I'm just after signing up and consultation and I'm very impressed as they taking all headache off you, all salary/dividends/expenses things. I really think its very reasonable offer where for such price you have peace of mind you need to concentrate on running your business.

Thanks for that. I plan to start operating on 1st April 2010 but have not yet seen an accountant or set up PAYE. Is it possible to simply deposit my cheques into the Ltd company bank account, start taking out all the proceeds weekly from April (to live off etc) and see an accountant later in the year (when I can afford it) to sort out the salary / dividend / PAYE details ? I guess not as I assume PAYE needs to be set up from 1st April and can't be back dated....Thanks

[Jenni384]

see an accountant later in the year (when I can afford it)

Most of us won't charge for a first meeting and it's unlikely you will have any upfront fees. Therefore you may as well find one sooner rather than later - and you can then get all your questions answered properly and make sure everything it set up properly from the word go. :)

Good advice from Bob and KM too :)