Paying myself hourly as a company director.

[Dave1994]

Hello,

I've recently formed a ltd company that provides a videography service. I've not run a company before and am learning as I go along at the moment.

I am having a difficult time getting my head around the payment side of things however, here is my problem;

I'm essentially a free lance photographer & video maker running through my Ltd company. I have gone ltd because I would like to learn the ins and outs of running a company whilst I'm young and plan to expand eventually.

I currently don't earn enough to give myself a salary but do need to withdraw some money as I've recently been made redundant from my main job and this is now my only source of income until I can find another part time job.

So, can I pay myself on an hourly basis each month using the PAYE system or does it have to be a set wage?

Any help would be much appreciated as I'm honestly a bit confused and can't afford an accountant right now.

Thanks,

Dave.

 

[arnydnxluk]

Hi Dave,

If you just need to pull some money out as a one-off payment until you're set up properly, you could issue a dividend from profits - this will be easier from the administrative / accounting perspective but probably isn't the most tax efficient way of paying yourself.

The 'paper work' for a limited company is much more complicated than that of a sole trader. An accountant will take every headache away, answer all of your questions and make sure you're paying yourself in the most tax efficient way. I would fully recommend trying your best to get an accountant on board, the cost of making a mistake will outweigh the cost of an accountant's services. You're talking about maybe £300-600 per year for a micro company, depending on the services you require. @MyAccountantOnline is active on UKBF, have a look at their website here: http://myaccountantonline.co.uk

I believe you can actually pay yourself a salary into your director's loan account - the funds don't need to be available in cash now but you can draw from the director's loan account in future when the funds are available. If you don't have any income outside the company, this could save you a fair bit in tax; such set ups enable an accountant to save you more in tax than the cost to hire one.

Sorry for the slight deviation from topic but I think most here would agree an accountant is really important and helpful when running a limited company, especially for the first time.

To answer your question - the amount paid through a PAYE scheme can indeed vary each month.

Good luck with your new company.

Mike

 

[Scalloway]

You need to register for PAYE. As a company director what you pay yourself is up to you. The normal recommendation is to pay yourself enough to get credited with NI contributions each year.

https://www.gov.uk/register-employer

 

[pentel]

I agree with Scalloway.

Register as an employer, pay yourself £675 per month.

If you have no other employment then there will be no tax or NHI to pay ( but you must run payroll and submit using RTI) but you will be earning enough to qualify for benefits including state pension.

The company does not have to pay you this money, the company could transfer the amount into a directors load account which you could draw from when either you need it or when funds allow.

I would recommend not letting the directors loan account become overdrawn. There are numerous tales of this going wrong over on insolvency.....

 

[White Collar Legal]

My accountant has told me that the most tax efficient way to pay myself is to pay up to the personal allowance via PAYE. That's £11,500 as a wage and if I want any extra, to take it from dividends. However dividends can only be taken if the company is making a profit.

Ultimately, you can pay yourself in any way you want, whether that is salary, hourly or dividend but like people have said you need to register your company with HMRC as an employer and accurate records need to be kept.

Perhaps using accounting software will assist

 

[STDFR33]

My accountant has told me that the most tax efficient way to pay myself is to pay up to the personal allowance via PAYE. That's £11,500 as a wage and if I want any extra, to take it from dividends. However dividends can only be taken if the company is making a profit.

Ultimately, you can pay yourself in any way you want, whether that is salary, hourly or dividend but like people have said you need to register your company with HMRC as an employer and accurate records need to be kept.

Perhaps using accounting software will assist

The most tax efficient way is different to each taxpayer depending on their specific circumstances.

Dividends can still be taken in a period of loss providing that there are still sufficient retained earnings to do so.

 

[Newchodge]

If you pay yourself £113 per week or 490 per month, or more, then you need to use payroll software of some kind, set up with HMRC as an employer and submit RTI returns before you pay yourself each week/month. You get credit towards your pension.

If you pay yourself £157 per week or £680 per month, you start paying NI contributions, currently 25.8% (employee and employer).

 

[Dave1994]

Thanks for the advice & replies. I will set up PAYE today and have found some software I can use to run payroll which helps out a lot.

I will get an accountant as soon as possible but as I say can't afford one right now and don't want to put myself into debt straight away. I am keeping records of absolutely everything in spreadsheets for the time being.

The money I take out at the moment is literally just to pay bills & keep myself afloat until I can find a back up job part time. With dividends, can I take them monthly at a variable rate also or do I need to take as a lump sum?

 

[STDFR33]

You can't just take money from the company.

You and company are two separate legal entities.

If you just take money out without properly declaring dividends, or running PAYE, then it is a loan. If it's a loan, then you potentially have 32.5% tax consequences.

When you tally up everything that can, and probably will go wrong because of your lack of knowledge, along with the harsh penalty systems for accounts and tax, an accountant is by far the cheapest option.

 

[Lisa Thomas]

I thought that dividends could not be drawn until 6 months trading period had passed?

 

[Mr D]

If you cannot afford an accountant right now can the business afford to pay you a wage?

 

[matlob]

If you pay yourself £113 per week or 490 per month, or more, then you need to use payroll software of some kind, set up with HMRC as an employer and submit RTI returns before you pay yourself each week/month. You get credit towards your pension.

If you pay yourself £157 per week or £680 per month, you start paying NI contributions, currently 25.8% (employee and employer).

I pay myself £680 per month and as far as I know only pay a very small amount of NI. I was told that this salary was the best to have via my company? Am I really paying 25% of my salary as NI?

 

[STDFR33]

I pay myself £680 per month and as far as I know only pay a very small amount of NI. I was told that this salary was the best to have via my company? Am I really paying 25% of my salary as NI?

No

 

[Mr D]

I pay myself £680 per month and as far as I know only pay a very small amount of NI. I was told that this salary was the best to have via my company? Am I really paying 25% of my salary as NI?

No.
Above the lower earning limit of NI then you are paying out both employers and employees NI on all pay above the limit.

 

[matlob]

phew!!

 

[Newchodge]

Sorry. 25.8% is payable on everything you earn above that limit, and only if you are the director and sole employee, as in this case.

 

[MikePage]

On the above facts; if you've recently been made redundant, you have probably had enough gross PAYE income in the current tax year (to 5/4/2018) to have utilised your tax free allowance.

If you have no further PAYE inome in the year - you would thus be able to reclaim some of the tax already paid; so, on the face of it, I'd look at not starting the payroll suggested above until the new tax year and take your income until then as dividends.

& Claim the tax refund.

If you have transferred some of your kit into the Company - it may well be that the Company owes you some money;

But as long as you are saving enough of you surplus to cover the Corporation Tax liability ; there is no fundamental problem with the dividend route. But - as noted above - once you are into the new tax year - get the payroll started.

 

[MyAccountantOnline]

...
The 'paper work' for a limited company is much more complicated than that of a sole trader. An accountant will take every headache away, answer all of your questions and make sure you're paying yourself in the most tax efficient way. I would fully recommend trying your best to get an accountant on board, the cost of making a mistake will outweigh the cost of an accountant's services. You're talking about maybe £300-600 per year for a micro company, depending on the services you require. @MyAccountantOnline is active on UKBF, have a look at their website here: http://myaccountantonline.co.uk

..

Many thanks Mike.