Hi,
My small company is doing well financially. However, since I pay myself (salary, dividend), it makes it not look as good.
Is there a way around this, excluding increasing profit or not paying myself as much?
It averages 4,500/month income and expense is about £1,000/month, and I take a fairly low income to survive with.
Thanks.
Hi tom. I’m not a director so please excuse me if I’ve got this wrong. If your paying yourself wouldn’t it be on the profit and loss rather than balance sheet? My understanding is the balance sheet is just for things you own or owe like wages not paid or vat.
Hi @tom_44
I’ve managed to find this thread that might help you make sure you are entering your salary correctly: Entering directors salary, PAYE and NI
If you take a salary, that is an allowable expense, which will reduce your profits - but also reduce the corporation tax burden.
If you take a smaller salary, it will improve the profits, which you could then pay yourself as a dividend. Dividends are payable to all shareholders on proportion to the shares they hold, and can only be paid if there are enough distributable reserves available.
Salary income is taxed at the rate of income tax prevailing on anything over and above your personal allowance. You get an additional £2k (shortly reducing to £1k) tax-free dividend allowance but then dividend tax is only payable at 8.75%.
The trick is to make sure that you as an individual utilise all of your available tax-free allowances and pay tax at the lowest rate possible, whilst keeping a healthy profit in the company but also reducing their tax as much as possible.
Income tax is higher than corporation tax, so if you are the only shareholder, it makes sense to take £12,570 in salary and £2,000 in dividends. If you want to take more than this, and there are enough reserves, it then you can declare a dividend once your annual accounts are drawn up.
How you structure your remuneration really depends on how well your company is doing, whether you have other shareholders or investors who are keen to see a return, and whether you would prefer to reduce your income tax burden (which will depend on any other earnings or income you have) or keep the corporation tax as low as possible.
Thanks a lot… I’ll take this into account.
This topic was automatically closed 14 days after the last reply. New replies are no longer allowed.