Get paid properly
Paying tax on their income is easy for sole traders; Their business’s income is their own and there’s only one self-assessment to fill out each year. Company directors, on the other hand, have corporation tax returns to complete, all the extra compliance work a limited company brings, and, to top it all off, a bigger tax bill. That is if they go down the normal route of salary and income tax. After all, their income will essentially be taxed twice, once through corporation tax and again through income tax, leaving them with less pay than they would have had if they were a sole trader.
We can guide you down some other avenues to pay yourself as a company director, so you get paid in as tax-efficiently as possible. We’ll weigh up all the possible routes and lay them out to you in an easy and concise format.
For instance, one popular method for company directors is a low salary topped up with dividend payments. Specifically, many keep their salary payment below the personal allowance tariff, which is £12,570 for 2021/22. No tax is due on income below this level.
Many don’t take out the full amount, however. Instead, they keep their salary below £8,840 so they don’t have to pay the secondary threshold of class one National Insurance contributions. Just remember that other sources of income, including savings and rental income, also count to the £8,840 limit, as a tax on wages is also deducted through PAYE.
You can then top up the rest of your pay with dividends, which are taxed at a lower rate than regular income. Each shareholder is also entitled to £2,000 of dividends completely tax-free.
But with dividends only being payable during periods of profit, unlike salaries, you might sometimes need another method to get paid as efficiently as possible. We can help there, too, so don’t hesitate to get in touch with us to see what other options you have.
Here’s what our clients think
“Having moved to Synergee nearly 15 years ago, we’ve been delighted with the level of service that we’ve received from all members of the team. They provide straightforward and practical advice on all matters and are able to make complex decisions simple to understand and easy to manage.”
Hands Free Computing Ltd