Can I run a limited company without getting salary?

[Ramubhaiya]

Just wanted to check if I can run a limited company without getting a salary..

Company will be making around 20K a year and I am already making around 30K in my own job. I am trying to save money for future in case my employed job gets affected and j will be able to put myself on payroll. My accountant has advised that its better to pay corporation tax than paying ourselves if we don't need the money at the moment.

 

[Ozzy]

Your accountant is right in that the company will need to pay tax on its profits, and you can run the business and not take any drawings from it yourself.

I’m curious why you are questioning your accountants advice though?

 

[Ramubhaiya]

Your accountant is right in that the company will need to pay tax dollars n it’s profits, and you can run the business and not take any drawings from it yourself.

I’m curious why you are questioning your accountants advice though?

Thanks very much Ozzy for the quickest reply. I am very impressed with the forum! I was just doing some calculations and below is what made me question my judgement.

If Profit = 20K
And I draw 20K, I will pay 20% Income Tax and won't pay corporation tax on it. If I don't draw any income I will still pay 20% corporation Tax. So I thought it is better to draw that income now as it will reduce my corporation tax..

When I called my accountant, I was bit shut off by him as he said that its not worth drawing income of you are already using your tax free personal allowance in another PAYE employed job..

 

[Gareth83]

You wouldn't pay yourself a salary, you would extract as dividends as your personal tax allowance is being used elsewhere.

It's not a black and white answer though as there are other factors to take into consideration. Pension payment would be a good option. Thus no corporation tax at all.... But.... It all depends

 

[DWS]

If you were to take the 20k in salary you need to consider that you will not only be paying Income Tax but also Employee N/I and Employers N/I

 

[NicoJ]

If you were to take the 20k in salary you need to consider that you will not only be paying Income Tax but also Employee N/I and Employers N/I

This.

Ask your accountant to put together a comparison of the taxes you will pay in each scenario to show you why it is not tax efficient. If you still want to do it then thats up to you. CT is 19% at the moment BTW.

My quick calculation showed it would cost you almost £2k more in tax to take salary than to pay CT & divs but as mentioned there may be other things that need to be considered that would change these figures.

 

[WaveJumper]

All the advice above is correct and agree with @NicoJ have your accountant put together some examples for you so you understand fully what direction you wish to take. You mentioned above "ourselves" is this just you or plus one other all the above of course hinges on your current earnings tax, NI etc

 

[Newchodge]

All the advice above is correct and agree with @NicoJ have your accountant put together some examples for you so you understand fully what direction you wish to take. You mentioned above "ourselves" is this just you or plus one other all the above of course hinges on your current earnings tax, NI etc

Are there any other employees apart from yourself as that makes a considerable difference in terms of employer's NI.

 

[Ramubhaiya]

Thanks all.. Yes it's just me and my wife. Both are also in an employed job working for a different employer. Sepertaly, through this Ltd company we are currently taking only 2K dividend each and paying CT on rest of the amount. I was wondering how else we can save on this Corporation Tax. I have tried with accountant to give me some figures or explain but he is extremely busy and I probably need to change him. We both work 8 to 4 in other jobs and then work for Ltd company in evenings and weekends in field sales. My other friends who are freelancers like ourselves pay for their daily food breaks through Ltd company but we have been asked to not do that either by our accountant.

 

[japancool]

Yes it's just me and my wife. Both are also in an employed job working for a different employer. Sepertaly, through this Ltd company we are currently taking only 2K dividend each and paying CT on rest of the amount.

You need to pay corporation tax on that 2k as well.

 

[Newchodge]

If both you and your wife take salaries of, say, £1,000 per month the company will save £380 in CT (2,000 * 19%) The cost will be at least £400 income tax (more if the salary puts you into a higher income tax bracket) and £72.72 employee NI (increasing next year by 1.25%).

Salaries do not seem to be the way forward, however dividends have no effect on CT.

 

[MyAccountantOnline]

Just wanted to check if I can run a limited company without getting a salary..

......

Yes you can

 

[Rawlinson Pryde]

As mentioned above yes you do not have to but it would be advisable to consider a salary (not £20k) for tax reasons.

 

[mattk]

I was wondering how else we can save on this Corporation Tax.

You can have an "annual event" (Christmas party etc.) for your employees plus one guest each up to the value of £150 per person, which is tax deductible:

Expenses and benefits: social functions and parties

Tax and reporting rules for employers providing social functions, including annual parties, for employees

www.gov.uk

You can claim £6 per week allowance for working from home:

Claim tax relief for your job expenses

Claiming tax relief on expenses you have to pay for your work, like uniforms, tools, travel and working from home costs.

www.gov.uk

Any business mileage you do in your own vehicle can be re-claimed at a rate of 45p per mile:

Expenses and benefits: business travel mileage for employees' own vehicles

Tax and reporting rules for employers covering the cost of employees using their own vehicles for business travel

www.gov.uk

 

[UKSBD]

You may pay a little more tax taking it out now as earnings, but at least you are getting the money out, can put it to use and are not just delaying paying the tax

Pay yourselves 8K each now and it costs you a couple of hundred £ more in tax
leave it in the company 5 years and there is £80k in there you might want to extract and who knows what that may cost in a few years time.

 

[WaveJumper]

Yep I would certainly have one eye on what might be coming for us tax payers in the New Year I am sure the news will not be what we want to hear.