Self Employed salary ?

[Hedgie]

If you are self employed as a sole trader, do you have to pay yourself the minimum wage?

 

[Hedgie]

What I am trying to say is that I work 30+ hours per week but at present the income generated is not up to the minimum wage level.

When it comes to tax credits, is the minimum 30 hours a week that is specified based on 30 hours at the minimum wage?

 

[Vaheed Akhtar]

What I am trying to say is that I work 30+ hours per week but at present the income generated is not up to the minimum wage level.

When it comes to tax credits, is the minimum 30 hours a week that is specified based on 30 hours at the minimum wage?

I was terrified of taking a set wage when I first started. The best way, IMO, is to sit down and work out your outgoings per year and divide them by 52 weeks - this will give you a basic idea of how much you should put away to bank/pay at the end of the month/year - this will then leave you with a figure of what you can pay yourself out of.

I think setting a set wage can be a little dangerous when you're a sole trader.

 

[Andrew @ PLA]

If you trade as a Sole Trader then you don't pay yourself, and can't show wages ... HMRC treat your Net Profit as what you have 'earned' from the business.

 

[Vaheed Akhtar]

If you trade as a Sole Trader then you don't pay yourself, and can't show wages ... HMRC treat your Net Profit as what you have 'earned' from the business.

That's partially true - depends on how good your accountant is

Your 'drawings' are taxable after £7,470 p/a - if your business shows a profit then the tax on your profit comes from the business, which directly affects you.

 

[Andrew @ PLA]

That's partially true - depends on how good your accountant is

Your 'drawings' are taxable after £7,470 p/a - if your business shows a profit then the tax on your profit comes from the business, which directly affects you.

Incorrect ... You have a personal allowance of £x (depending on your tax code), any profit over and above the allowance is liable for tax. You can find more information on Self Assessment on the HMRC website : here

 

[avantime]

For tax credits you will have to estimte your income. I recently had a chat with an employee of HMRC and she said to underestimate your self employed income. There is no system in place to pay out extra if it turns out you are due more!!!

 

[arcon5]

If you are self employed as a sole trader, do you have to pay yourself the minimum wage?

I wish!

I don't make a terrible living - but I won't be sitting down and working out what my wage equates to per hour anytime soon .

I'm pretty sure alot of small business owners would agree.. maybe?!

But like everybody else says... your profit is your income. You don't make any profit, you don't/can't take a wage - you make thousands and can make a decent then as long as your putting money out of these profits to one side for tax purposes then success!

 

[Vaheed Akhtar]

Incorrect ... You have a personal allowance of £x (depending on your tax code), any profit over and above the allowance is liable for tax. You can find more information on Self Assessment on the HMRC website : here

But we should all have the basic tax code of 747L - no? I think I'm mixing things up with a Ltd company and dividends. So, if he drew every penny of the businesses profit, say less than or equal to £7,470 in the first year - he will be due NO TAX. aye?

 

[Mike W]

If you are self employed as a sole trader, do you have to pay yourself the minimum wage?

Yes, I did that once in a business I had years ago. The firm didn't last long though unfortunately

I didn't have enough to pay myself after the 1st month ....so I had to lay me off. Nothing was the same from then on....

A pity though. It was a great business idea - Contraceptives for Catholics

 

[MyAccountantOnline]

But we should all have the basic tax code of 747L - no? I think I'm mixing things up with a Ltd company and dividends. So, if he drew every penny of the businesses profit, say less than or equal to £7,470 in the first year - he will be due NO TAX. aye?

The basic tax code is 647L so that means you can earn £6475 before paying tax.

When you are self employed you also get a tax free allowance of £6475 so you can earn that much before paying any tax.

Self employed people dont pay tax on what they take out of the business (drawings) - they pay tax on sales/business income less allowable business expenses, and that doesnt include drawings which many people call 'wages'.

It causes great confusion for many people.

 

[Andrew @ PLA]

i totally agree with him.

With who? About what?

 

[thecyclingartist]

What Nicola said - when you're self employed sole trader your tax is based on the business profit. You can take drawings on the accounts but that is not a business expense deducted from the accounts and still counts in the business profit.

Simplified, your personal tax return is the business tax return as a sole trader. You don't have wages. Your personal allowance is the same as everyone's personal allowance and there isn't an additional allowance for the business.

Tina.

 

[Astaroth]

As a sole trader you and your business are one and the same thing and therefore anything your business brings in is effectively your salary, you can deduct off the business related costs (ie expenses if you were an employee) and you pay the tax on the difference.

Ltds are different as they are a seperate legal entity and therefore whilst the money is still in the company you have no personal liability for tax (but the company will have its own taxes to pay). Subject to how close to the edge you want to sail you can manipulate wages/ dividends etc you want to draw to heavily discount the amount of tax payable compared to a self employed or employee type person.

To go back to the initial question, does a self employed person have to pay themselves minimum wage? A self employed person doesnt pay themselves anything, they generate profit. If you divide profit by the number of hours worked to achieve it it certainly can be below minimum wage (or even a negative number) and as long as your happy to do this (and your paying your creditors/ suppliers etc) there is no legal issue for you to run a business at £1 a day profit.

 

[MyAccountantOnline]

Ltds are different as they are a seperate legal entity and therefore whilst the money is still in the company you have no personal liability for tax (but the company will have its own taxes to pay). Subject to how close to the edge you want to sail you can manipulate wages/ dividends etc you want to draw to heavily discount the amount of tax payable compared to a self employed or employee type person.

I wouldnt agree its a case of how close to the edge you want to sail - nothing wrong at all with tax planning and tax effective payment of salary and dividends to minimise tax.

Operating a business via a limited company can save tax but not always.

 

[Astaroth]

nothing wrong at all with tax planning and tax effective payment of salary and dividends to minimise tax.

Not saying there is anything wrong with it, but tax law tends to have a lot of shades of grey in it and there can be a fine line between tax mitigation and tax avoidance. Some are willing to go close to that and others would rather keep in a more comfortable zone

 

[MyAccountantOnline]

Not saying there is anything wrong with it, but tax law tends to have a lot of shades of grey in it and there can be a fine line between tax mitigation and tax avoidance. Some are willing to go close to that and others would rather keep in a more comfortable zone

Some areas of tax legislation can be complex but tax planning with a combination of salary and dividends for a small company director isnt in that league - its just simple effective tax planning

 

[Cathy Duncan]

Nicola J: Yeah, it is so, and I am of the opinion that tax policies must always be drafted keeping in vision average salaries and dividends, so that it could be applied upon people properly and equally.

 

[Liybpg]

Sorry, it might have come up in here but:
If I own Ltd, do I need to pay myself minimum wage? What about national insurance? Does that kick in straight away (unavoidable cost) or is there a income level when it starts?

So basically, if I open a Ltd - what are the 'must have', regular costs involved in employing myself (ignoring other costs like a website etc)

 

[MyAccountantOnline]

Sorry, it might have come up in here but:
If I own Ltd, do I need to pay myself minimum wage? What about national insurance? Does that kick in straight away (unavoidable cost) or is there a income level when it starts?

So basically, if I open a Ltd - what are the 'must have', regular costs involved in employing myself (ignoring other costs like a website etc)

You are really best advised to discuss this with your accountant - you dont have to pay a salary but generally a combination of a basic salary and dividends is best, but it does depend on your personal circumstances.

 

[Liybpg]

You are really best advised to discuss this with your accountant - you dont have to pay a salary but generally a combination of a basic salary and dividends is best, but it does depend on your personal circumstances.

Thank you. The purpose of the question was to find out whether if I own (or employed by my own) company which doesn't make much money - does this company need to pay me (the owner) a minimum wage and a national insurance.

I am just thinking, if I do start a small company (for fun mainly), what costs would I have to have? I don't want to pay myself from this company as I have another income and this would be just a small venture for myself.

 

[MyAccountantOnline]

Thank you. The purpose of the question was to find out whether if I own (or employed by my own) company which doesn't make much money - does this company need to pay me (the owner) a minimum wage and a national insurance.

I am just thinking, if I do start a small company (for fun mainly), what costs would I have to have? I don't want to pay myself from this company as I have another income and this would be just a small venture for myself.

I understand - no you dont have to pay a salary.

Good luck with it.

 

[elaine@cheapaccounting]

Thank you. The purpose of the question was to find out whether if I own (or employed by my own) company which doesn't make much money - does this company need to pay me (the owner) a minimum wage and a national insurance.

I am just thinking, if I do start a small company (for fun mainly), what costs would I have to have? I don't want to pay myself from this company as I have another income and this would be just a small venture for myself.

see here on directors salary:

http://www.cheapaccounting.co.uk/blog/?p=683

 

[Liybpg]

Thank you, this is becoming clearer.
So, if I pay 0 pounds to myself in salary, that means that I pay (as an employee and employer) 0 pounds in NI. Furthermore, if my salary is below £5,715 per year, I don't pay nationla insurance. Correct?