how much to pay myself as a self employed

[enjoylife]

I am sure this has been discussed as I read a similar thread sometimes last year. But cannot really dig it out now. So sorry to post a new thread to ask this question.
In the last few years, I paid myself ZERO when prepared the self assessment form. Then worked out the income tax. But somebody said：
<-You minimise your risk and can then pay yourself a small salary (minimising your tax and NI) and then dividends that you will pay corporation tax on.
make sure you get full government NI contributions, as well as take full advantage of the tax-free allowance.->
This sounds like the best way for tax return. So my questions are:
1.Does this true?
2. How much exactly I can pay myself per annual?
3. Why this is better way to go?

I will appreciated any comments and inputs.

 

[David A]

Corporation Tax is not paid by those that are self-employed. it is paid by limited companies. did you mean a limited company?

 

[Figurate]

I am sure this has been discussed as I read a similar thread sometimes last year. But cannot really dig it out now. So sorry to post a new thread to ask this question.
In the last few years, I paid myself ZERO when prepared the self assessment form. Then worked out the income tax. But somebody said&#65306;
<-You minimise your risk and can then pay yourself a small salary (minimising your tax and NI) and then dividends that you will pay corporation tax on.
make sure you get full government NI contributions, as well as take full advantage of the tax-free allowance.->
This sounds like the best way for tax return. So my questions are:
1.Does this true?
2. How much exactly I can pay myself per annual?
3. Why this is better way to go?

I will appreciated any comments and inputs.

Are you trading as a sole trader or through a limited company?
If you are a sole trader, then you can't pay yourself a salary - you are taxed on all your business profits whether you draw them (take them out of the business) or not. Sole traders don't pay out dividends. Sole traders pay personal income tax. Limited companies pay corporation tax.

If you are trading as a limited company, then depending on your circumstances, you might find it beneficial to pay a salary at the secondary threshold and take the rest as dividends.
The salary can be claimed against corporation tax. Dividends are paid after corporation tax, and carry a notional 10% tax credit (this means that if you are a basic rate taxpayer, there will be no further personal tax to pay)

 

[enjoylife]

I am sole trader at this moment.
So it sounds like I cannot pay myself monthly, for example £500/m?

 

[Paul_Rosser]

As a sole trader all your income is taxed under normal PAYE rules, so you don't really pay yourself but anything you make (minus dividends) over your tax allowance (about 8k) will attract normal income tax and NI payments.

Depending on your turnover you may be better off going limited.

 

[David A]

I am sole trader at this moment.
So it sounds like I cannot pay myself monthly, for example £500/m?

You can pay yourself what you like as a self employed person (provided you have the funds) but you will still be taxed on your net profits, not what you have extracted from the business.

Sole trader (self employed) is not as flexible regarding income as a limited company.

For example, allowable business expenditure for self employed has to be 'wholly, exclusively, and necessarily', whereas for a limited company it only has to be 'wholly and exclusively'.

 

[MrPAYE]

As a sole trader all your income is taxed under normal PAYE rules

You might want to rephrase this

 

[MrPAYE]

For example, allowable business expenditure for self employed has to be 'wholly, exclusively, and necessarily'

The 'necessarily' bit is for employment income, i.e. under PAYE rules

 

[Paul_Rosser]

You might want to rephrase this

Yeah I thought that, but then couldn't edit.

 

[MyAccountantOnline]

I am sole trader at this moment.
So it sounds like I cannot pay myself monthly, for example £500/m?

You can pay yourself whatever you want, but should set aside money for your tax.

You pay Income tax and class 4 NIC on the profits you make not what you draw from the business.

 

[MyAccountantOnline]

As a sole trader all your income is taxed under normal PAYE rules.....

PAYE