Paying myself before latest invoice has been paid

[virtuesoft]

The reason you can do it is because the tax point for your invoice is the invoice date. So as of the day you invoice them, that income is booked (even though not received yet). That means it is legal to pay dividends based on that income, even if you are "borrowing" the cash from your corporation tax savings to do it.

It is not good practice to do frequently, however, if the only cash you have available is allocated to corporation tax or some other obligation. As others have said, you should work to build up a bigger reserve. Also, if you are going to do without an accountant, you need to spend some time getting a lot smarter about accountancy. If you had to ask the question you asked her, you don't know enough to be doing without an accountant.

Thank you, that explains it very well.

[virtuesoft]

Have you raised the invoice already, and as such is an outstanding debtor to you?

Are you paying yourself salary or dividend?

Also what does your contract say about payment terms, are they in breach changing the way you get paid or did you accept the change of terms?

I think it will be a case of 99.99% of the time people will get away with doing what you want to do, as long as in July you have the funds to cover your liabilities, but the question I need to ask, if you are using next months money to pay this month, what are you going to do between now and July? Are you working on the proviso that the invoices will drop in every month and you can keep your head above water while you do, what happens if you get canned and you have no new money coming in?

Yes, the invoice was raised on the 1st February. I usually invoice on the first working day of the month. The payment terms in my contract are 30 days. Therefore, they're still within the terms of the contract. I guess I have been lucky that for the past 3 years I've been here they've been paying within around 2 weeks, which has suited me well.

I'm paying myself a small salary, and the rest in a dividend.

If I lose this contract I'll just have to liquidate some of my investments. I have the equivalent of around 3 years' salary in various shares. I could do this now but I don't want to as the market has taken a dump recently and I don't think it's a good time to sell. I know a lot of you keep money in your company as a warchest, but I've found it's much better to withdraw the money as you earn it and then invest it. However, that's another discussion entirely.

[northernladuk]

If I lose this contract I'll just have to liquidate some of my investments. I have the equivalent of around 3 years' salary in various shares.

So what did you do with the dividends?

I could do this now but I don't want to as the market has taken a dump recently and I don't think it's a good time to sell. I know a lot of you keep money in your company as a warchest, but I've found it's much better to withdraw the money as you earn it and then invest it. However, that's another discussion entirely.

Appears that this maybe isn't better, or not without some level of warchest that will last you a whole 2 weeks at least.

[LondonManc]

So what did you do with the dividends?



Appears that this maybe isn't better, or not without some level of warchest that will last you a whole 2 weeks at least.

You're assuming they were outside IR35.

Reading thread after thread of this sort of stuff makes you wonder if umbrella is a better route!

[northernladuk]

You're assuming they were outside IR35.

Eh? He pays small salary and dividends so have to assume he is.

That said being there three years and having nothing to fall back on when the gig ends I'd put money on him being part and parcel so inside now.

[LondonManc]

What? He pays small salary and dividends sinuous have to assume he is.

Huh?

[virtuesoft]

So what did you do with the dividends?

Appears that this maybe isn't better, or not without some level of warchest that will last you a whole 2 weeks at least.

I don't come on here often so forgive me if it's not obvious, but are you the resident troll? Let me make this more clear. By 'salary', I meant my entire earnings for the year. I probably should have put 'after tax earnings', or something similar.

I have over £400k in investments, so it's a bit more than 2 weeks worth, unless you're Roman Abramovich. Please don't worry about me or my financial situation.

[SimonMac]

I don't come on here often so forgive me if it's not obvious, but are you the resident troll? Let me make this more clear. By 'salary', I meant my entire earnings for the year. I probably should have put 'after tax earnings', or something similar.

I have over £400k in investments, so it's a bit more than 2 weeks worth, unless you're Roman Abramovich. Please don't worry about me or my financial situation.

So you pay your entire yearly salary in one hit? Can't you take half (or the minimum you need to cover outgoings) and then the rest after the invoice drops?

[northernladuk]

Pointing out you are using the incorrect term isn't exactly trolling. It's pretty key. There are more than enough people come on here who ask questions and really don't know the difference.

[SueEllen]

I don't come on here often so forgive me if it's not obvious, but are you the resident troll? Let me make this more clear. By 'salary', I meant my entire earnings for the year. I probably should have put 'after tax earnings', or something similar.

The word you are looking for is income.

I found that term very useful when it came to getting new credit cards as a contractor.