how do i pay myself

Hello,

i am looking for a bit of basic guidance on how i go about paying myself a wage.

Lets say for example my ltd company receives £20k in payments in April (which is an estimation) day 1 is April 1st is there a maximum proportion a can legally pay myself and how do i go about setting up a paye scheme (its only for me) do i just get a form from the revenue?

The money is for entry into a sporting event, i have 89 participating venues in europe 14 of which are in the UK and i will simply be collecting a portion of every entry - there are 6 individuals that service these venues (approx 6 countries each) they will be taking a portion and making 6 single payments to my business account, I plan to retain 20% in the business to be used as prizes later plus a very small amount to cover operating costs. So basically the costs to me each month to run this etc are zero no storage no purchase costs etc etc.

I dont need to pay myself a massive amount but would like to pay myself a substantial portion for the first 6 months or so (to bring some financial stability to personal finances (which will be nice)) then change to a smaller basic wage and a larger dividend style payment once or twice each year (as i understand this is the best way to go)


I would appreciate a pm or some advice on this.

Thanks

 

[DFL]

I presume that you have already had your personal allowance this year so why not just pay the allowance (£6035 per annum) as salary from 6 April (new tax year) and take balance as dividends straight away?

 

So to be clear are you suggesting that i pay myself a wage for april of £6035, then stop paying a wage and take dividends? If so that would seem to be a great solution and one i would never have considered

Is there a maximum frequency of dividend payments or can the be monthly so long as documented etc?

One last bit of free advice required, what is the difference in tax paid between a dividend payment and a salary at 40%, i am pretty sure i know the method of calculation just not the actual rates.

thanks

 

[DFL]

No, what I am suggesting is that you pay yourself £6035 for the whole of the tax year as salary so just over £500.00 per month (assuming your tax code 603L). Then, take the rest in dividends.

With regard to dividends, there is no maximum frequency, you can take them daily if you require. There is a common belief that the more often you take dividends, the easier it is for HMRC to argue that the payments are salary and therefore require further tax / NI payments. This is often advised by accountants to clients but is simply not true. If you hear this, ignore it. So long as properly documented out of sufficient profit - your dividends cannot and will not be reclassified by HMRC.

Once you are in the higher rate band, dividends will be taxed at 22.5% of the grossed up amount, being 32.5% less the 10% credit. Equates to 25% of the actual amount of the dividend paid /credited.

 

Thank you,

one last question, i would assume (probably incorrectly) that i would never be a 40% tax payer if i only pay myself a wage that is equal to my personal allowance?

Thanks for info so far, as i am a one man band is paying myself the wage just a case of getting a form from the revenue?

Last question, honest!

 

[DFL]

Yep that's right.

Ring HMRC new employer helpine for registration and a starter pack.

Operation of the payroll will be a straightforward process as there will be nil tax/NI to pay.

 

[David Griffiths]

Thank you,

one last question, i would assume (probably incorrectly) that i would never be a 40% tax payer if i only pay myself a wage that is equal to my personal allowance?

Thanks for info so far, as i am a one man band is paying myself the wage just a case of getting a form from the revenue?

Last question, honest!

As DFL says, that's correct in itself, but that assumes that your wage is your only income for the year. If you pay yourself dividends, or have other taxable income, it's quite possible to be a 40% taxpayer because all of your income is taken into account. And at £6,035 salary you would pay some personal and employer's National Insurance - contrary to the advice given above. The threshold for NI is £105 per week this year and £110 for 2009-10.

Without getting into exact figures, and totally from memory, you would become a higher rate taxpayer after about £31-32k dividends in the year.

Given that you've referred to dividends already, and to some months income being £20k, it's important to clarify that point.

 

[KateCB]

Ooh! We were told by HMRC that we would pay no tax or NI on a salary of £430.00 per calendar month for one of our part time employees, and our accounts/payroll software seems to bear this out (MYOB) are we wrong or is just the maths (52 weeks) that makes it OK?

Kate

 

[David Griffiths]

Ooh! We were told by HMRC that we would pay no tax or NI on a salary of £430.00 per calendar month for one of our part time employees, and our accounts/payroll software seems to bear this out (MYOB) are we wrong or is just the maths (52 weeks) that makes it OK?

Kate

£430 per month works out at £5,260 a year, so they are correct in saying that there is no tax or NI - for anybody on the normal tax code.

However, that figure is at a level above the lower earnings limit for NI (although not above the primary threshold which, confusingly, is different) That means that you have to maintain PAYE records for the employee - form P11 or the electronic equivalent - and make a return of earnings allocated between different NI categories for the year. If you are using payroll software this will do it for you - the form will show various numbers but nothing to pay.

 

[KateCB]

Phew! I was starting to panic there........!!!