PAYE Payments and Directors Salary

[Dave the rave]

Hi,

I have set up a PAYE system with HMRC. However it would seem that both my fellow director and I am going to have to work for our LTD company for free for a good 6 months. My thoughts are this :

We are both going to have a salary of £10400, and then take dividends when profits allow (could be a while)

If we work for say 6 months for nothing, could we take our 6 moths salary owed in one go and send off any PAYE payments due to HMRC at that point ?

 

[john1989]

Any reason why you want to pay yourselves £10,400?
How do you plan to live if the company doesn't have anything to pay you with for the first six months?

Why not pay an even salary throughout the year and credit it to your DLA's and draw from it when funds permit?

 

[MyAccountantOnline]

Any reason why you want to pay yourselves £10,400?
How do you plan to live if the company doesn't have anything to pay you with for the first six months?

Why not pay an even salary throughout the year and credit it to your DLA's and draw from it when funds permit?

I was just about to type almost the exact same response.

 

[john1989]

Beat you ;-)

 

[MyAccountantOnline]

Indeed too quick for me this morning John

 

[john1989]

It was the crappy coffee from Starbucks that helped. I best go do some work, otherwise you might think a quick response from me is the norm...

 

[MyAccountantOnline]

It was the crappy coffee from Starbucks that helped. I best go do some work, otherwise you might think a quick response from me is the norm...

 

[CloudAccountantcouk]

For company directors National insurance is worked out on your annual earnings rather than from what you earn in each pay period. Therefore you pay same amount if you pay it all in one month or in equal installments.

 

[kevin.doran]

£10400

£10,600

 

[Dave the rave]

Further explanation required.

We have both loaned the company money for a franchisee fee and initial business set up. The company is making money, but we also need to live so this is our plan.

Take £2k out of the company per month as a loan repayment from the company to us.
Pay ourselves £894 The reason we decided to pay ourselves a wage ontop, is that we wanted the company to pay us a salary rather than work for it for nothing, which in effect that is what we would be doing if we just took the money our as a loan repayment. This way we can credit our DL to the company our wages as well. Have I missed something ??

 

[Energise Accounting]

what you do is this pay yourself £883.33 per month salary

If you have the cash available at the end of the month you pay yourself like any other employee.
If their is not enough cash available to pay yourselves you simply credit your DLA until such time funds are available.
you will have to still pay any NI due to HMRC on a monthly basis approx. (25.40) however, you should be able to save on the employers NI using the employment allowance.

how you treat the loan you made to the company is a separate matter again just take it back as cash flow allows.

 

[john1989]

If you both have no other income, the most beneficial annual salary is £10,600. I’m not sure where you are getting £10,400pa or £894 per month from.

If retained earnings are also sufficient, you could also declare dividends up to the point of no personal tax being payable which again could be credited to your DLA’s.

Do you not have an accountant that can advise you on these matters? There’s more than likely room for more tax savings that you will miss by trying to DIY.

 

[Dave the rave]

yes 10,600 not 10,400 !! I do need to engage an accountant. I also like to try and understand things a little better myself. I am assuming the business cannot pay a dividend until it has paid off its loan ? As it won't be in profit until this happens ?

 

[Walkol]

The loan does not effect your profit. It's is purely a balance sheet item between you (DLA) and the company (Bank account)

You can pay a loan if you have POST TAX profits available.

 

[MyAccountantOnline]

what you do is this pay yourself £883.33 per month salary

.......

I wouldn't advise this if you have other income, excluding dividends.

I've taken on a few new clients lately who've done this after seeing suggestions on forums not realising that any other income they have needs to be taken into consideration, especially people running businesses part time whilst working.

 

[Dave the rave]

The loan does not effect your profit. It's is purely a balance sheet item between you (DLA) and the company (Bank account)

You can pay a loan if you have POST TAX profits available.

hmmm, The business has cost around £40k to set up. Surely the business is not in profit until it has made more than £40k ? By the same token the business can pay the Directors money they have lent to it back on a monthly basis assuming there is money there ? Also we couldn't take any dividends until the company has made £40k and in profit ?

 

[Walkol]

It depends on the make up of that £40k. I am assuming here that a large portion of the £40k was capital items whereby the cost will spread over numerous years?

Apologies - my post meant to say you can pay a dividend, not loan, if there are post tax profits.

 

[Energise Accounting]

The loan is a balance sheet item and will shown on your balance sheet as a liability to the business. As the company pays you back it simply reduces the liability on the balance sheet. Over a year or even a number of years.

As mentioned you can pay dividends out of any profits you like they do not have to reach £40,000 .

I would go and see an accountant for about a hour and they will explain things in more detail

 

[Dave the rave]

It depends on the make up of that £40k. I am assuming here that a large portion of the £40k was capital items whereby the cost will spread over numerous years?

Apologies - my post meant to say you can pay a dividend, not loan, if there are post tax profits.

The £40k loan was for the franchise fee. We loaned the company the money and the company bought the franchise. I understand that the loan is a balance sheet item (now !!) As the company used the £40k to buy a franchise, I assume it is £40k in the red and therefore we need to make £40k before there is a profit and therefore a dividend can be taken ?

 

[Scalloway]

It depends what the franchise fee was for. If it was just for the privilege of using the franchisors name it is capital, if it is for signs, equipment etc it is capital. You have the option of deciding on a policy to write off these capital items over a number of years to allow dividend to be paid.

 

[Energise Accounting]

The company is not £40k in the red. The affect your loan would of had on the balance sheet is this
Dr Bank a/c £40,000
Cr D/loan £40,000

Then as scalloway has said you have to decide on how you capitalise the franchise fee.