By running your business through the company, the question arises as to how to take profits out of the company properly and with the minimum tax.
Where it is just you in the company, you will have a choice to withdraw funds as dividend or salary. Provided you do not have any other income it will save tax to withdraw salary less than your personal allowance and therefore tax free in your hands.
There are three possibilities to consider:
- Where your salary is below the lower earnings limit, there is no need to run a payroll, and no further reporting requirements.
- Where your salary is below the earnings threshold, you will have to register as an employer and submit an employer's annual return, but there will be no tax or national insurance to pay.
- Once you pay exceeds the earnings threshold, you will have national insurance both employers' and employees' and soon after your earnings will exceed the personal allowance and there will be income tax to pay as well.
Filing an employers' annual return is often worthwhile, despite the administrative cost and exposure to late filing penalties. A year could be added to your state pension
Although you will be filing an employers' return the payroll will be basic. This is directors are assessed to national insurance on an annual basis, and therefore it is not necessary to ensure small payments of salary on a monthly basis to remain within the thresholds.
We can help advise on the best split between salary and dividends based on your circumstances and future expectations. Please be in contact for a free meeting.