Paying a salary & dividends

[GaryH]

Hi all,

I'm going full-time with my business at the end of the year and just need to clarify something. Is it compulsory to pay yourself a salary? I have been advised by my accountant to pay myself £430 a month in order to stay under the first tax bracket, and take the rest each month as dividends. Is it possible to take everything as dividends in order to save the hassle of setting up a PAYE scheme? Tax-wise, I can't see that it'll make any difference if I'm planning to always pay myself under the tax threshold, so can I do this?

Many thanks

[SARHosting]

Personally I dont worrie about tax Burden - I am just registered as Self Employed - put a time sheet in to my accounts then pay me my salary - I don't think its worth having a tax burden just for you.

[GaryH]

Originally Posted by SARHosting

Personally I dont worrie about tax Burden - I am just registered as Self Employed - put a time sheet in to my accounts then pay me my salary - I don't think its worth having a tax burden just for you.

Thanks, but this is for a limited company as opposed to a sole trader.

[SARHosting]

This can still be the case - I think. You can still eb self employed and still invoice the company weekly/monthly - again saves the tax burden. Not 100% sure but this is how Ive seen it work before with previous employers.

[Steve-H]

You can pay yourself 100 percent dividend but I believe HMRC like to see some normal monthly payroll as well. This is probably a question for your accountant, they must have a reason for advising you to operate like this.
You should also be aware that you can only declare a dividend if the business is in profit so paying monthly dividends requires the company to be in constant profit after allowing for earlier dividends and corporation tax due at the end of the year. You will need to be able to show this by maintaining accurate accounts. Payroll on the other hand can be paid even if the company is not in profit in that particular period (just so long as you expect to be in profit soon!).

[monaghan]

If you're not paying yourself, but drawing a dividend, then I'd suggest that your accountant ensures that you do not fall under IR35 or the latest "lets get at small companies set of rules".

[Brian Turner]

Originally Posted by GaryH

Hi all,

I'm going full-time with my business at the end of the year and just need to clarify something. Is it compulsory to pay yourself a salary? I have been advised by my accountant to pay myself £430 a month in order to stay under the first tax bracket, and take the rest each month as dividends. Is it possible to take everything as dividends in order to save the hassle of setting up a PAYE scheme? Tax-wise, I can't see that it'll make any difference if I'm planning to always pay myself under the tax threshold, so can I do this?

Many thanks

This is what I'm doing, with the caveat my accountant advised to pay dividends quarterly or semi-annually, so that there's less chance of the dividends being seen as being a direct surrogate for wages.

The argument being - if you're getting a monthly income, are you sure that's a dividend and not a wage? The taxman may not agree ...