Being the director of a limited company comes with many rewards, one of which is being in charge of your salary. But how exactly do you take money out of your own company? There are a couple of ways to do this:
1. PAYE (Pay as you earn) in real time
Also referred to as Real Time Information (RTI), PAYE is a scheme run by HMRC to collect National Insurance Contributions (NICs) and Income Tax for all employees of a limited company, including the directors. To pay yourself and any other employees a salary, bonuses or expenses, you will need to be registered. As the director, you will be registered as both the employer and employee.
Each time you wish to pay yourself a portion of your yearly salary, whether it’s monthly or weekly, you must send a PAYE return to HMRC detailing the total pay, tax and deductions. The NICs you pay will depend on your tax code and, as an employer, you will also pay employer’s Class 1 NICs.
Companies Made Simple offer a PAYE registration assistance service to ensure your application is correct and less likely to be delayed due to errors. See here for more information about this service:
Dividends are payments that can be made to shareholders, provided the company has made enough profit. You do not pay National Insurance Contributions on them but you will pay Income Tax, the amount of which depends on your overall taxable income. For current rates, please see here.
To issue a dividend to yourself (and any other shareholders – dividends must usually be paid to all shareholders of the company) you need to hold a director’s meeting to declare the dividend payment and keep minutes of the meeting. This is still a requirement even if you are the sole director or shareholder of the limited company.
For each dividend, a dividend voucher must be created, showing the date, company name, name of shareholder(s) being paid, the amount of the dividend to be paid and the amount of ‘dividend tax credit’, which is 10% of the dividend income.
Remember! A company limited by shares is its own entity, separate from the director(s). It has its own assets and liabilities and as a director you are in charge of managing the company. Any money the company makes belongs to the company and you must use the appropriate methods above to pay yourself (unlike a sole tradership).
We strongly recommend seeking the advice of an accountant if you have any questions regarding the above processes: