A director's loan is defined as money taken from your company that isn't either of the following:
A Director's Loan Account (DLA) is a record of all transactions between the company and its directors. It records not just the money owed by the directors, but also the money owed to them.
Director's loans can be used:
If you're paying an employee for the first time, you'll need to set up payroll. You need to take the following steps:
A contractor working through their own limited company can pay themselves through a couple of ways such as paying a salary and paying dividends. There are a few factors that need to be considered when deciding the best way to go about this.
For example, when operating inside IR35, contractors will be restricted to paying themselves a salary however when operating outside IR35 the doors are opened to maximise tax efficiencies.
If you're self-employed, HMRC will work out your loan repayment amount from your tax return. You make your repayment the same time you pay your tax.
If you're an employee and your salary is above the minimum amount, your loan repayments will be deducted from your salary by your employer.
As a contractor, how you pay yourself will vary depending on whether your contract is subject to IR35.
We've provided a more detailed explanation in our Forma Help Center resource.
There are various ways to repay a director's loan.
The optimum salary for a contractor to pay themselves in the current tax year is dependent on their overall income throughout the period.
In the instance there is no other income to be considered, it is generally recommended that salary is paid in line with the Secondary National Insurance threshold which is currently £732 per month (20/21).
A dividend is money that's paid out by limited liability companies to investors, usually on a quarterly or annual basis. These payouts are based on the quarterly profits of your company as well as the amount of stock you own.
Dividends are calculated based on profits-what is left in your company after all expenses have been paid-not revenue.
Dividends can be either paid in cash or reinvested into your investment portfolio via dividend reinvestment, or via SCRIP dividends-which allow companies listed on the LSE to give investors additional shares instead of cash payouts.
Dividend tax refers to the rates by which those dividends are taxed according to HMRC. Each year, these tax rates may differ.
"What are the rules around holiday pay?" is a common question often asked by employers.
It can be confusing, as regulatory changes mean that employers now need to consider additional elements when working out an employee's holiday pay.
Simply put, employers now need to include regular commission and regular overtime payments when calculating an employee's or worker's holiday pay.
This is explained in further detail below:
If you're operating as a sole trader, you can contribute to a personal pension scheme.
If you're a limited company director, you can make pension contributions as an individual (as an employee), as well as through your company (as an employer). For the latter option, your pension contributions are paid directly from your business bank account.
To hire a new employee, you need to:
If you're hiring staff for the first time, refer to HMRC's guide on the steps you need to take.
You can pay an independent contractor by an hourly or daily rate, or by the project through the contractor's preferred payment method. You won't need to withhold taxes, as they are responsible for paying their own income and National Insurance contributions.