By Simon Misiewicz
Pay yourself from April 2015 based on the below information.
Paying a wage
£10,600 is the tax-free personal allowance but you will pay national insurance if you pay yourself this amount from the limited company.
National insurance is not due if you reduce your wages to £8,060 per year.
This means that you need to pay yourself a monthly wage of £671.66 to be tax and national insurance efficient.
Please note that you will need to register as an employer if you start employing other people other than the directors.
You may wish to take more money than £8,060 per year out of the limited company. As such you can pay yourself in dividends. Please note that you can only pay yourself a dividend if you are making profits.
For example, if your limited company makes £10,000 profit then you can only pay yourself a dividend equal to or less than £10,000.
The basic rate of tax is limited to £31,785. After this amount you will start to pay 40% tax. You will also need to add the personal allowance shown above to get the total amount of money you can earn before paying higher rates of tax. This means that you can pay yourself £42,385 (£10,600 + £31,785) and not pay any income tax.
The difference between £42,385 and the wages paid of £8,060 is therefore £34,325. This is your dividends that can be taken tax-free. This is the gross amount so you will need to pay yourself a net dividend of £31,204.54 (£34,325/110 X 100) per year. This equates to £2,600.33 per month.
If you do pay yourself over the suggested levels then you will pay an additional 22.5% up to 5 April 2016. This will be increased by George Osborne in future years.
This means that you can take out £39,264.36 per year or £3,272.303 per month tax-free from your limited company provided that you have no other forms of income (profit from property, shares interest, dividends, employment income, etc).
Please note that you will need to ensure that your record in your bookkeeping two transactions per month:
- £671.66 in wages (recorded as a cost in your profit and loss)
- £2,600.37 in dividends
This article was first published on 20 May 2015.