Congratulations! You’re now the Director of your very own company. This is a very exciting time for you with lots going on. And because of that it’s easy to forget some of the fundamentals. Including how you can pay yourself from your Limited Company.
And it’s not as straightforward as you may think.
Being the Director of your own Limited Company in the UK is very much not the same as being a Sole Trader when it comes to withdrawing money from your business.
I can’t stress this enough but you CANNOT simply just use the money in your Company as your personal bank account as you may have done before you incorporated.
You do, though, have a number of options when it comes to paying yourself.
How you can pay yourself from your Limited Company
These options are:
- A salary,
- Dividends, or;
- a mixture of both.
Many Directors choose the latter as conventional wisdom (up to now) has been that this is more tax efficient. And that is certainly still the case when it comes to your personal income tax.
But one thing many fail to factor in is that salary, income tax and National Insurance contributions are Corporation Tax deductible. And Dividends are not.
What this means is that when you pay yourself a salary you can deduct it and any associated deductions (Tax, NI, Student Loan, Pensions) from the annual profits of the company. That’s actually a good thing for the Company as it lowers the Corporation Tax bill.
Simple Example
| Dividends Only | Salaries Only | |
| Company Profit | £100,000 | £100,000 |
| Dividends | £50,000 | |
| Salaries & deductions | £50,000 | |
| Taxable Profit | £100,000 | £50,000 |
| Corporation Tax | £19,000 | £9,500 |
This is obviously very simplified, but you can see that withdrawing money from your business when it’s a Limited Company is more complex than many think.
Yes, you want to be paying yourself in the most tax efficient way but just be aware that tax is not limited to your personal Income Tax. And this may be even more important for Single Director Companies. After all, that Corporation Tax payment has to come from somewhere.
And that somewhere is your company.
Admittedly, paying yourself a salary means:
- registering as an employer
- running a payroll, and;
- Complying with The Pensions Regulator obligations
But you don’t need to be doing that on you own.
These are just some of the of reasons why you need a good Accountant.
And if you’re considering setting up a new company, incorporating your current business or you already have now is the time to start talking to one.
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