Director - must I pay myself

[darrylmg]

Hello all,

This might sound like a stupid question but I can't find any info on it online and I'm a noob.
I have just started up a Ltd company and would like the company to build up some cash before I start paying myself as Director.
I am already employed fulll time elsewhere so don't need the income from my company.

:|- Must I pay myself from my company?

:| - Also, do I need to notify my existing employee that I have setup a Ltd company? i.e. for tax reasons?

Any advice much appreciated.

Darryl

 

[Scott-Copywriter]

No you don't need to pay yourself anything (in terms of a salery) but you will take dividends depending on your percentage shareholding. You would probably be able to put this back into your limited company as capital though.

I might be completely wrong but this is as far as I know.

 

[bwglaw]

I trust you have taken advice about setting up a Limited Company? Although it is cheap to set up the maintenance costs are significantly higher and with greater responsibility in addition to your full-time employment.

You should read your contract of employment to see if there is a clause restricting you from running a business or being a shareholder. As well as any 'competition clauses'.

In response to the above points, if you are the only Director and Shareholder you do not have to draw anything, even dividends.

It is good advice to see an Accountant and to get a feel of the 'maintenance costs' which can be anything from £500 for the statutory accounts etc.

 

[darrylmg]

:| - Also, do I need to notify my existing employee that I have setup a Ltd company? i.e. for tax reasons?

Sorry, this should read:

do I need to notify my existing employer...

:redface:

Thanks for your prompt reply scott.

 

[bwglaw]

Sorry, this should read:

do I need to notify my existing employer...

Which I have replied. Additionally if you not opted-out of the 48-hour per week rule and if you are likely to exceed those hours then the employer can ask questions and you should notify to the same.

 

[darrylmg]

Sorry, I know you answered it correctly.
It took me so long to edit the correction that you had answered it just before I posted it.

I have spent a lot of time looking at the pros and cons of sole trader versus limited and am aware of the overhead for the limited company.

So provided my employer isn't too bothered (believe me they probably aren't) it's ok.

I am not the sole owner of my business, my wife is working as my secretary as she has a lot of financial experiance.
Again she doesn't need a salary.

So you think I can keep all the cash in the company and invest it for it's own good?

 

[bwglaw]

So you think I can keep all the cash in the company and invest it for it's own good?

I do not see why not but an Accountant on here may say otherwise. You can withdraw around £415/month without paying PAYE, or you can just run the business unpaid and withdraw dividends/salary when you feel ready

Jonathan

 

[darrylmg]

Thanks Jonathan.

One further question sort of related:

I created the company with an issued capital of £1000.
£500 for me and £500 for the wife.

I want to introduce another £1000 into the company.
The options that I understand there to be are:

1, Increase the number of shares in the business 500 of £1 each.
or
2, Pay a Director's loan into the company.

I understand that option 1 requires some paperwork and fees to companies house for the updated Articles etc.


What's involved in option 2?

Regards,

Darryl

 

[bwglaw]

Whilst I am more than happy to advise it is really out of my remit to advise on the most tax efficient way of putting more money into the company. I can advise on number 1, but number 2 should be answered by an Accountant.

This is where I must allow an Accountant to answer your specific query

Jonathan

 

[Kent Accountant]

Hard to see why you would want to introduce additional capital as share capital. It would normally go in as a director's loan. There are no formalities, you just bank it. You can then withdraw it without ant tax or accounting issues. If you leave it in, it may be beneficial to pay interest on the amount outstanding. You can only withdraw the £415 per month that Jonathan refers to without PAYE if the director drawing the salary is not in receipt of earned income from another source. If your wife doesn't work, it may be worth paying her a salary, even if she reinvests it in the company as she will probably get a free class 1 NIC credit.

If your wife does not contribute equally to the business, the accountancy profession are awaiting the outcome of the Arctic Systems case to see whether the share split that you have set up is effective for tax purposes.

 

[darrylmg]

Cheers Bob.
I was hoping the director's loan option was as easy as that.

We both work so would both pay PAYE on any income.
I feel that this would:
a, make the business short of cash.
b, make us hit the higher tax band on income.

Until the business is viable I'm not too fussed about income from it.
I just want to let it grow (ahhh ).

I'm hoping that it will eventually lead to a change in lifestyle and employment.

Incidently how much would one have to pay for such advice if one was to go to actually, physically see an accountant (do people do that?)? roughly?

 

[Kent Accountant]

Incidently how much would one have to pay for such advice if one was to go to actually, physically see an accountant (do people do that?)? roughly?

It depends where you went. I understand that KPMG charge £450 per hour give or take a bit. We'd probably cover it in our free initial interview if you were lucky in the hope that you would want us to act for you at an annual fee of £500 - £1,250 depending what was involved. Fortunately people do come and see us and pay us so we can indulge ourselves by contributing to forums like this while we're watching the tele

 

[darrylmg]

Hmmm, you've got tele to watch at the same time.
Not bad.

Thanks everyone for your help.
I can sleep in peace tonight.
Well, maybe after the next chapter of "Book-keeping & accounting for the small business". Enthralling.

 

[GameOn Sports]

Sorry, I know you answered it correctly.
It took me so long to edit the correction that you had answered it just before I posted it.

I have spent a lot of time looking at the pros and cons of sole trader versus limited and am aware of the overhead for the limited company.

So provided my employer isn't too bothered (believe me they probably aren't) it's ok.

I am not the sole owner of my business, my wife is working as my secretary as she has a lot of financial experiance.
Again she doesn't need a salary.

So you think I can keep all the cash in the company and invest it for it's own good?

There is a strong risk of double taxation if you do this.
The money in the company will attract Corporation Tax at whatever rate.
You'll then pay tax when you withdraw it as a divi or a salary.
You need advice from an expert.

 

[bwglaw]

The money in the company will attract Corporation Tax at whatever rate.

Only after £10,000 profit. I do not think the OP will need to worry about this especially as he stated that he will hold onto his full-time employment

 

[Kent Accountant]

Only after £10,000 profit. I do not think the OP will need to worry about this especially as he stated that he will hold onto his full-time employment

The £10,000 nil rate for corporation tax was abolished in the last budget. If you intend to reinvest the profits you are far better off paying 19% corporation tax than 40% income tax + class 4 nic. There are ways to take the profits out later at nil / low tax rates

 

[Gisela]

i run a company for four years, i never have paid myself.

regards

gisela