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How to pay myself from my Ltd company?
5 Answers
Hi there, good-people-ready-to-help!
My wife and I just set up a limited company, I am a shareholder/director/secretary and she is a director. We have invested everything we have in the new company and work like crazy 14-16 hrs a day but still cannot earn enough money to pay ourselves regular salaries. Now we plan to pay ourselves for the first time to cover some basic living expenses (not more than �1000) and my question is:
1) What is the best way to pay ourselves a VARIABLE monthly amount to fund our living expenses?
We do not have employment contracts with our company and cannot afford to pay regular salaries. At least for now.
2) Do we need to register as an employer with Inland revenue? Do we HAVE to operate PAYE? (It is too complicated, too much paperwork and we cannot afford an accountant.:(.
3) How do we pay ourselves for the FIRST time?
Can I just draw money from the business account and then pay taxes and NIC?
4) Where and how do I pay the taxes and the NIC? How does it work?
Thanks for your help and please excuse my ignorance. Regards.
My wife and I just set up a limited company, I am a shareholder/director/secretary and she is a director. We have invested everything we have in the new company and work like crazy 14-16 hrs a day but still cannot earn enough money to pay ourselves regular salaries. Now we plan to pay ourselves for the first time to cover some basic living expenses (not more than �1000) and my question is:
1) What is the best way to pay ourselves a VARIABLE monthly amount to fund our living expenses?
We do not have employment contracts with our company and cannot afford to pay regular salaries. At least for now.
2) Do we need to register as an employer with Inland revenue? Do we HAVE to operate PAYE? (It is too complicated, too much paperwork and we cannot afford an accountant.:(.
3) How do we pay ourselves for the FIRST time?
Can I just draw money from the business account and then pay taxes and NIC?
4) Where and how do I pay the taxes and the NIC? How does it work?
Thanks for your help and please excuse my ignorance. Regards.
Answers
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I've just been through this - moving from self-employed to Ltd. I'm not saying it was easy, but I have managed to do it all myself, without employing an advisor.
1) As Directors of your company, you can broadly do what you like with salary. You don't need to have a formal employment contract - my business is set up the same as yours and we just recorded formally in the Resolutions of the Directors what we would pay ourselves. If you then can't afford it, you waive your salary until you can afford it.
2) Yes and yes. As far as I know, you have absolutely no choice in this matter. you must register with HMRC for PAYE. They will send you a New Employers pack with amongst other things, a copy of document P49 - Paying someone for the first time. I'm not pretending this part was easy but I did manage to use the interactive CDROM they supply to set up my business on my PC, with the 2 Directors as employees. The software works out how much NIC and PAYE tax one must deduct as employers, based on how much pay you tell it you have paid yourself. HMRC are aware that many small businesses won't have experience at doing this and the Help Line I found quite useful. They supply payment slips so that the business can pay HMRC the due NIC (employers and employeees) and tax, which is due monthly (or quarterly if one is small - I pay quarterly).
3) Yes, you take the money from the business account, having worked out what the deductions are - I created a simple payslip for my business in Excel. Then the HMRC deductions are paid out of the business account when they fall due.
4) The CDROM does all of this. If Treasury change the allowances, HMRC dispatch an updated CDROm to use. And a new one turns up each April for each successive year.
1) As Directors of your company, you can broadly do what you like with salary. You don't need to have a formal employment contract - my business is set up the same as yours and we just recorded formally in the Resolutions of the Directors what we would pay ourselves. If you then can't afford it, you waive your salary until you can afford it.
2) Yes and yes. As far as I know, you have absolutely no choice in this matter. you must register with HMRC for PAYE. They will send you a New Employers pack with amongst other things, a copy of document P49 - Paying someone for the first time. I'm not pretending this part was easy but I did manage to use the interactive CDROM they supply to set up my business on my PC, with the 2 Directors as employees. The software works out how much NIC and PAYE tax one must deduct as employers, based on how much pay you tell it you have paid yourself. HMRC are aware that many small businesses won't have experience at doing this and the Help Line I found quite useful. They supply payment slips so that the business can pay HMRC the due NIC (employers and employeees) and tax, which is due monthly (or quarterly if one is small - I pay quarterly).
3) Yes, you take the money from the business account, having worked out what the deductions are - I created a simple payslip for my business in Excel. Then the HMRC deductions are paid out of the business account when they fall due.
4) The CDROM does all of this. If Treasury change the allowances, HMRC dispatch an updated CDROm to use. And a new one turns up each April for each successive year.
It may be advisable to get a book keeper if you can't afford an accountant.
There are various items to consider and presumably you want to pay the least amount of tax as possible - as an example I take a wage and dividends monthly.
There are also enterprise agencies such as Business Link in your local area who will help give you advise.
I also don't mean to be rude, but I would suggest that if you are working those kind of hours and can't take out �1000 per month then maybe you could consider employment - you could earn more and have less hassle.
There are various items to consider and presumably you want to pay the least amount of tax as possible - as an example I take a wage and dividends monthly.
There are also enterprise agencies such as Business Link in your local area who will help give you advise.
I also don't mean to be rude, but I would suggest that if you are working those kind of hours and can't take out �1000 per month then maybe you could consider employment - you could earn more and have less hassle.
If you've only just started then you will be working a lot of hours for little or no return. It takes time to generate income.
Have you put money into the company? If you do have money there you can withdraw that as 'owners withdrawal' which is tax and NI free.
You can't pay yourself a dividend yet if you're not making a profit.
Once you do start paying yourself a salary then you might want to consider using a payroll company, for two of you it will probably only cost about �25 - �30 a month. It will probably take you longer than that in time to sort out your tax, NI etc every month. Your time is better spent generating income rather than working out tax and NI payments.
Have you put money into the company? If you do have money there you can withdraw that as 'owners withdrawal' which is tax and NI free.
You can't pay yourself a dividend yet if you're not making a profit.
Once you do start paying yourself a salary then you might want to consider using a payroll company, for two of you it will probably only cost about �25 - �30 a month. It will probably take you longer than that in time to sort out your tax, NI etc every month. Your time is better spent generating income rather than working out tax and NI payments.
So many good people out there!!!
To: buildersmate
Your input was extremely helpful and much appreciated. Will follow every piece of your advice!
Thank you so much!
To: Oneeyedvic
You are right, being employed is so much easier. In the beginning we have to invest most of what we earn in the business, but in 3-4 months we will be making good money.
To: cascarelli
Your encouragement really helps! And thank you for the tip, will definitely do that.
I can't thank you enough, guys!
And if you ever need a website or print materials, you will always get a 20% discount from me. And I mean it. Thanks again!
Kiko
[email protected]
To: buildersmate
Your input was extremely helpful and much appreciated. Will follow every piece of your advice!
Thank you so much!
To: Oneeyedvic
You are right, being employed is so much easier. In the beginning we have to invest most of what we earn in the business, but in 3-4 months we will be making good money.
To: cascarelli
Your encouragement really helps! And thank you for the tip, will definitely do that.
I can't thank you enough, guys!
And if you ever need a website or print materials, you will always get a 20% discount from me. And I mean it. Thanks again!
Kiko
[email protected]
lol - thanks very much for the offer.
If you are doing print / website design, I would also look at BNI (http://www.bni-europe.com/) and see if there is a chapter near you (if you are in Norfolk, Suffolk or Cambridge give me a shout @ victor at aagf.co.uk). You may find it very beneficial to your business
If you are doing print / website design, I would also look at BNI (http://www.bni-europe.com/) and see if there is a chapter near you (if you are in Norfolk, Suffolk or Cambridge give me a shout @ victor at aagf.co.uk). You may find it very beneficial to your business
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