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).
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UK Spring Budget 2021: 19 Things You Need to Know About the Budget
1. Furlough scheme extended to September 2021
The government has committed to continue paying 80% of employees' wages when they are unable to work, with employers not having to make any contributions until July 2021.
2. Support for the self-employed extended to September 2021
As part of the covid support package from the government, the the Chancellor confirmed that he will extend the self employed income support scheme with those submitting a self assessment tax return before midnight 2nd March being eligible.
3. Universal Credit uplift to stay for 6 months
The £20 weekly uplift in Universal Credit has been extended for a further 6 months, with Working Tax Credit claimants being eligible for a £500 one-off payment.
How do I pay myself as a contractor?
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.
How do I pay an employee?
If you're paying an employee for the first time, you'll need to set up payroll. You need to take the following steps:
- Register as an employer with HM Revenue and Customs (HMRC) and get a login for PAYE Online.
- Choose payroll software to record employee's details, calculate pay and deductions, and report to HMRC.
- Collect and keep records.
- Tell HMRC about your employees.
- Record pay, make deductions and report to HMRC on or before the first payday.
- Pay HMRC the tax and National Insurance you owe.
What is a Profit & Loss Account?
The profit and loss account (P&L) is a financial report that shows the revenue, expenses and profit or loss of your company over a specific accounting period.
This period can be a month, a quarter or a year. A P&L is also commonly referred to by other terms, such as the income statement, statement of operations, financial results statement and earnings statement.
What are Accruals?
Accruals refer to revenue that have been earned, or expenses that have been incurred but aren't yet recorded in a company's accounts.
Examples of accrued expenses include wages payable, bonuses, interest on loan and goods received.
One example of accrued revenue is accrued interest.
On the balance sheet, accrued expenses are recorded under the current liabilities section, while accrued revenue are recorded under the current assets section.
What are benefits in kind?
For self-employed persons or employers, it can be challenging trying to understand the rules surrounding benefits in kind. These can be complicated; some benefits are taxable while others aren't, and it gets tricky figuring out which rules apply to your situation.
To make things a little easier to understand, we've written up a quick guide below. After reading our guide, you'll understand what benefits in kind are, have a clearer idea of which ones are taxable (and which ones aren't), and get an overview of what you need to do when it comes to reporting and paying taxes on benefits in kind.
Do keep in mind that this isn't a definitive guide, as HMRC's decision to impose a tax varies by situation. If you need specific advice, doconsult our specialist accountants at Forma.
How do I pay myself dividends?
To pay a dividend, you need to:
- Hold a directors' meeting to ‚Äòdeclare' the dividend.
- Keep minutes of the meeting, even if you're the only director. For smaller companies, this may often be just a case of getting the paperwork completed.
- Issue dividend vouchers.
What is the optimal salary for a Company Director?
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).
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.
When can I pay myself as a Limited Company Director?
Salaries are typically paid out monthly. While dividends can be drawn at any frequency across the year-as long as there are sufficient distributable profits-payments are typically made on a monthly or quarterly basis.
What are BACS and CHAPS payments?
CHAPS-an abbreviation for Clearing House Automated Payment System-is a same-day bank-to-bank payment system. It is typically used for large, one-time payments, as the transfers are relatively expensive to process. There are no upper or lower limits to the amount that can be transferred.
BACS, or Bankers' Automated Clearing Services enables payments to be made electronically from one bank to another. The transfer method handles all debit and credit card transactions, has an upper limit of £250,000 per transfer and is mainly used for low-value transactions. BACS payments take three working days to clear.