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As the director of a limited company, you may also be classed as an employee. As such, you may pay yourself a salary through the PAYE scheme—which is similar to how other employees of the company receive their pay.
You’ll need to register as an employer with HMRC (even if you’re the sole director of a limited company, and are only employing yourself), set up and run payroll, report to HMRC and abide by HMRC’s record keeping requirements.
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When do I have to pay National Insurance?
For employers, the deadline for paying National Insurance will vary depending on the amount payable.
If the amount payable exceeds £1,500, the deadline will fall on the 22nd of the month (or the 19th if payment is made by post).
If the amount payable falls below £1,500, you can make quarterly payments instead of monthly ones. The quarters end on 5 July, 5 October, 5 January and 5 April, and payments are due on the 22nd of the month (or 19th is payment is made by post). For example, for the quarter ending 5 July, the payment must be made by 22 July.
Contractors - should I be paying myself salary and dividends?
As a contractor, how you pay yourself will vary depending on whether your contract is subject to IR35.
- Contract subject to IR35 (inside): Salary
- Contract not subject to IR35 (outside): Salary, dividends + reimbursing any expenses you have paid for out of your own pocket
We've provided a more detailed explanation in our Forma Help Center resource.
How do I pay a Contractor?
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.
What is a Director's Salary?
As a limited company director, you pay yourself through drawing a salary and receiving dividends from your company.
Drawing a salary from your company is fairly similar to how you'll be paid if you were employed elsewhere-you'll run payroll, submit the required information to HMRC each month and receive your salary (after income tax and NIC have been accounted for).
7 ways to improve your monthly cash flow
Healthy cash flow is one of the most powerful weapons in a small company's arsenal.
In fact, cash on hand can be the deciding factor in a customer's choice to buy from your company or a competitor.
For instance, imagine landing the large order of your dreams, but losing the business to a competitor because you lack the capital necessary to prepay for the products needed to fill the customer's order. Fortunately, you can avoid this pitfall by making a few simple changes in your operations.
Below is a look at seven ways to grow your monthly cash flow by reducing expenses.
Income Tax Calculator
What is income tax?
Income tax is a tax imposed on the income or profits made by individuals in any given tax year. While this is typically deducted at source for employees, self-employed persons pay income tax differently and may be taxed a different amount.
What is the current self-employed income tax rate?
Income tax rates for the 2019/20 tax year are as follows:
- Personal Allowance: Up to £12,500 (0%)
- Basic rate: £12,501 to £50,000 (20%)
- Higher rate: £50,001 to £150,000 (40%)
- Additional rate: over £150,000 (45%)
If you need more information on Personal Allowance and income tax rates for previous tax years, check out the following guides from HMRC:
Paying income tax as a self-employed person: What you need to know
Unlike employees, self-employed individuals don't pay income tax through PAYE-they're required to file an annual Self-Assessment tax return.
Most people file their returns online these days. The deadline for doing so is 31st January, while payments for your tax bill are due on 31st January after the end of the relevant tax year. That means that your 2018/19 tax year must be paid up by 31st January 2020.
If you're newly self-employed, you'll need to register for Self-Assessment. Keep in mind to stay within the deadline, as there are penalties for registering your Self-Assessment late. We explain more about key deadlines, as well as late filing and payment penalties in our Self-Assessment guide.
- Income tax rates and Personal Allowances
- Checking your Income Tax for the current year
- Tax codes
- Self Assessment Tax Returns: A beginner's guide for the self-employed
- Understanding the P60: What is a P60 form, and what do you need to know?
- PAYE forms
How should I pay overseas supplier?
To pay an overseas supplier, you need to:
- Decide on a payment currency
- Select a payment method: There are various payment methods and payment service providers available, including bank transfers, credit card payments, PayPal and TransferWise. When you're choosing a payment method or provider, you need to think about the currencies available, fees, exchange rates, speed of international transfers and payment reconciliation capabilities.
- Obtain the information you need to process the payment: You may need to obtain different types of information from your supplier, depending on the payment method you agree on. These may include their full name and address, bank account number, routing number and branch number and address.
How do I pay a Limited Company Pension?
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.
How do I hire a new employee?
To hire a new employee, you need to:
- Check if your business is ready to hire a new staff
- Kickstart your recruitment efforts. You can recruit employees on your own, or by using a recruitment agency.
- Check that the candidate has the right to work in the UK
- Find out if they require a DBS check
- Check if you need to enrol the employee into a workplace pension scheme. Here's a guide for first-time employers. If you've already hired employees previously, refer to this resource instead.
- Before carrying out salary negotiations, you need to check the National Minimum Wage for different ages and types of jobs. You'll also need to finalise the employment contract, and provide a written statement of employment particulars within 2 months of the start of employment.
- Notify HMRC that you've hired a new employee. Make sure you're aware of the steps you need to take when you start paying your employee.
If you're hiring staff for the first time, refer to HMRC's guide on the steps you need to take.
What are Directors Loans?
A director's loan is defined as money taken from your company that isn't either of the following:
- A salary, dividend or expense treatment
- Money that you've previously paid into or loaned the company
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:
- when you need to access money in your company-apart from what you take out as a salary, dividend or expense treatment-for personal reasons.
- for a variety of purposes, such as covering the costs of a home repair bill, travel plans or any unforeseen personal expenses that may arise.
How do I repay a Director's loan account?
There are various ways to repay a director's loan.
- Dividend: A dividend can be declared, and the money can be used to pay off the loan instead of being transferred to the director's personal account.
- Cash repayment: A repayment is made by transferring money into the company account.
- Expenses or salary: The loan can be paid off using other money to the director, such as the director's salary or expense reimbursements.
How do I pay myself a salary?
If you're the director of a limited company, you're also considered an employee. As such, you may pay yourself a salary through the PAYE scheme-which is similar to how other employees of the company receive their pay.
You'll need to register as an employer with HMRC (even if you're only employing yourself as the sole director of a limited company), set up and run payroll, report to HMRC and abide by HMRC's record keeping requirements.