Questions about my books

paulomunky · Oct 25, 2009

Hey everyone,

Hope someone can help me, I just have a few questions about my tax, VAT & NI.

We are a private limited company (vat registered) having just started up. I'm just coming to start doing my books using Sage. I've got good knowledge of this as I used to work in technical support.

I want to pay as little tax as possible (haha im sure I'm not the only one here). My understanding (please correct me if I'm wrong) is that we get around £5000 tax free allowance. I guess we take that out as a wage?

Now here I'm pretty sketchy...as far as I know we will then have to pay tax on dividends (corporation tax?) or on drawings (PAYE?) and NI on top of that. Could someone give me a bit of advice on the best way to work this and and what I would need to put into Sage.

Grateful for any help!
Thanks!

Paul

Bob · Oct 25, 2009

posted in error

iridessa · Oct 25, 2009

I think you will need to set up a PAYE scheme with the Revenue. You can get a payroll package from sage as well as accounts too. The tax free allowance will be applied via your tax code. The Revenue used to do some manual tax tables but I'm sure someone told me that they have stopped this now and you will need to either pay someone to do the wages for you or buy your own payroll package....but don't quote me on this.

CDB · Oct 25, 2009

iridessa said:
The Revenue used to do some manual tax tables but I'm sure someone told me that they have stopped this now and you will need to either pay someone to do the wages for you or buy your own payroll package....but don't quote me on this.

If you register as an employer with HMRC they send you a free CD-ROM which calculates tax / NI for you.

You can play around with different amounts & work out the most efficient way to pay yourself.

Always worth speaking to an accountant though!

David Griffiths · Oct 25, 2009

iridessa said:
You can get a payroll package from sage .

You can get better payroll packages for half the price of Sage. Ditto accounts.

elaine@cheapaccounting · Oct 26, 2009

Paul

You need to decide on the most tax efficient way of operation. For a limited company this generally involves a conversation with your accountant.

To get a bit more info do have a read of this on salary v dividend:

http://www.franklyaccounts.co.uk/fivesalary.php

and this on your limited company duties:

http://www.franklyaccounts.co.uk/fivefile.php

Good luck with it all

MyAccountantOnline · Oct 26, 2009

paulomunky said:
My understanding (please correct me if I'm wrong) is that we get around £5000 tax free allowance. I guess we take that out as a wage?

Hi Paul

Yes - all individuals have a personal allowance ie an amount they can earn before paying tax. This is currently £6,475 for someone aged up to 65. So the directors can draw a salary up to the amount of the personal allowance and, assuming that they have no other income, pay no Income tax on the salary, whilst the company will get tax relief on the salary.

Do remember though that National Insurance may be due, and you may want to look at paying a salary which is just above the lower earnings threshold for NI purposes.

You will need to register as an employer with HM Revenue & Customs, and run a payroll, if -

any company employees already have another job
they are receiving a state or occupational pension
you're paying them at or above the PAYE threshold
you're paying them at or above the National Insurance lower earnings level
you're providing them with employee benefits

paulomunky said:
Now here I'm pretty sketchy...as far as I know we will then have to pay tax on dividends (corporation tax?) or on drawings (PAYE?) and NI on top of that. Could someone give me a bit of advice on the best way to work this and and what I would need to put into Sage.

The best advice I can give you is to discuss this matter with your an accountant if you have one as they can advise on the best and most tax effecient way of taking funds out of the company.

In general you will probably want to look at a combination of salary, dividends and possibly directors loan repayments depending on your personal circumstances.

A dividend doesnt save the company tax and will only be taxed in the hands of the person receiving it if he/she is a higher rate tax payer. You can only pay a dividend if the company makes profits and need to ensure it is done properly and is properly documented.

As a limited company you wont have (or shouldnt have!) drawings - these are only for soletraders and partnerships.

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Questions about my books

paulomunky

Bob

iridessa

CDB

David Griffiths

elaine@cheapaccounting

MyAccountantOnline

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