Salary/Dividend Level

[AFLondon]

Hi Everyone

I am on my first "proper" contracting project (was previously PAYE) and need a bit of advice when it comes to paying myself dividends and salary.

What's the normal amount that you pay yourself in dividends, my accountant said one thing but then I've spoken to a contracting friend who said that you pay yourself the 8060 salary with dividends and if you want to stay at the lower tax bracket, you make sure that the salary + dividends don't exceed £43k. Is that right? Is there no way of paying yourself more? Find it all quite confusing to be honest!

Thanks

[MrMarkyMark]

Hi Everyone

I am on my first "proper" contracting project (was previously PAYE) and need a bit of advice when it comes to paying myself dividends and salary.

What's the normal amount that you pay yourself in dividends, my accountant said one thing but then I've spoken to a contracting friend who said that you pay yourself the 8060 salary with dividends and if you want to stay at the lower tax bracket, you make sure that the salary + dividends don't exceed £43k. Is that right? Is there no way of paying yourself more? Find it all quite confusing to be honest!

Thanks

Of course there is, you will just pay more tax on it.

I took around £100K last year in divs.

[LondonManc]

Hi Everyone

I am on my first "proper" contracting project (was previously PAYE) and need a bit of advice when it comes to paying myself dividends and salary.

What's the normal amount that you pay yourself in dividends, my accountant said one thing but then I've spoken to a contracting friend who said that you pay yourself the 8060 salary with dividends and if you want to stay at the lower tax bracket, you make sure that the salary + dividends don't exceed £43k. Is that right? Is there no way of paying yourself more? Find it all quite confusing to be honest!

Thanks

Your accountant will know your circumstances far better than your contracting friend will.

While your friend may be correct from their point of view, they don't know your exact situation. Your accountant won't be far different to what your friend has said. You can pay yourself more if you want to enter the higher tax bracket - it costs more in tax for each pound beyond that which you want to take out, unless you start looking at things like pension, expenses and so on. I'd rather go with what an accountant recommends than a friend does

[northernladuk]

Hi Everyone

I am on my first "proper" contracting project (was previously PAYE) and need a bit of advice when it comes to paying myself dividends and salary.

What's the normal amount that you pay yourself in dividends, my accountant said one thing but then I've spoken to a contracting friend who said that you pay yourself the 8060 salary with dividends and if you want to stay at the lower tax bracket, you make sure that the salary + dividends don't exceed £43k. Is that right? Is there no way of paying yourself more? Find it all quite confusing to be honest!

Thanks

Time to start learing, and fast. There are a raft of articles on the internet and quite a few in the newbies guides to the right. Read them ALL and understand them. Do NOT rely on advice from fellow contractors, ever. The actual amount you can pay yourself will vary by a few thousand depending on who you speak to. No one seems to agree on the exact figure but it's peanuts so don't worry. Just make absolutely sure you know why you get paid that amount, how effects the total amounts and what the tax brackets are etc. The amount of divis you take depends on YOUR personal situation. Some people take them all out whatever the tax, some people keep under the bracket to be as efficient as possible, others are somewhere in between. You do what is right for you, not what others do.

If you don't understand anything then sit down with your accountant and get them to explain it in great detail. Don't leave until you understand fully. Actually understanding how you renumerate yourself is pretty fundamental. Working as a contractor but not understanding how you pay yourself is a poor place to be in.

Read the guides, speak to your account and THEN come and ask us about the detail.

BTW your main focus has to be building up your warchest for your second gig. That one is the hardest as they say as won't be earning anything while looking for it. You need 3 to 6 months money in the bank to be ready for the bench. Don't take it all out and spunk it up against a wall. You are going to have a very difficult time if you do. Whatever the advice for dividends you should be (IMO) taking as little as possible during the first gig. You can sort the rest out at the end of the year.

[VillageContractor]

Time to start learing, and fast. There are a raft of articles on the internet and quite a few in the newbies guides to the right. Read them ALL and understand them. Do NOT rely on advice from fellow contractors, ever. The actual amount you can pay yourself will vary by a few thousand depending on who you speak to. No one seems to agree on the exact figure but it's peanuts so don't worry. Just make absolutely sure you know why you get paid that amount, how effects the total amounts and what the tax brackets are etc. The amount of divis you take depends on YOUR personal situation. Some people take them all out whatever the tax, some people keep under the bracket to be as efficient as possible, others are somewhere in between. You do what is right for you, not what others do.

If you don't understand anything then sit down with your accountant and get them to explain it in great detail. Don't leave until you understand fully. Actually understanding how you renumerate yourself is pretty fundamental. Working as a contractor but not understanding how you pay yourself is a poor place to be in.

Read the guides, speak to your account and THEN come and ask us about the detail.

BTW your main focus has to be building up your warchest for your second gig. That one is the hardest as they say as won't be earning anything while looking for it. You need 3 to 6 months money in the bank to be ready for the bench. Don't take it all out and spunk it up against a wall. You are going to have a very difficult time if you do. Whatever the advice for dividends you should be (IMO) taking as little as possible during the first gig. You can sort the rest out at the end of the year.

Is your accountant a contractor specialist? If not it might be worth trying a specialist.

But do your own research do understand how your company operates, plenty of good links on here

[kaiser78]

Hi Everyone

I am on my first "proper" contracting project (was previously PAYE) and need a bit of advice when it comes to paying myself dividends and salary.

What's the normal amount that you pay yourself in dividends, my accountant said one thing but then I've spoken to a contracting friend who said that you pay yourself the 8060 salary with dividends and if you want to stay at the lower tax bracket, you make sure that the salary + dividends don't exceed £43k. Is that right? Is there no way of paying yourself more? Find it all quite confusing to be honest!

Thanks

Be careful as there is an alternative £11k salary limit which also keeps you in the lower tax bracket, depending on how your limited company is set up. Your accountant can advise based upon your specific setup.

[missinggreenfields]

Hi Everyone

I am on my first "proper" contracting project (was previously PAYE) and need a bit of advice when it comes to paying myself dividends and salary.

What's the normal amount that you pay yourself in dividends, my accountant said one thing but then I've spoken to a contracting friend who said that you pay yourself the 8060 salary with dividends and if you want to stay at the lower tax bracket, you make sure that the salary + dividends don't exceed £43k. Is that right? Is there no way of paying yourself more? Find it all quite confusing to be honest!

Thanks

Salary £8060 (£11k if you can still claim NI back) plus whatever you need to live on as dividends. That might be £10k, it might be £100k - only you know what you need to live on, and no-one here (or your friends) can really give any meaningful advice. Make sure it's accounted for properly, and make sure you pay the right level of tax on the money.

[TheCyclingProgrammer]

The advice you've given is generally correct for *most* typical contractors although there are other factors that can have a bearing on this (if you have your full personal allowance, any other employment in the year, multiple shareholders etc.).

Of course you're not limited to that level of dividends, you can take more and pay more tax on them if you need it and you may want to speak to an accountant about pension options if you have one.

Probably the best advice if you're starting out would be to take as little as you can to survive on in the first year or two to build up a healthy retained profit in your company - this is your "warchest" and lets you continue to pay yourself dividends even if you're out of contract. The size of your warchest depends on how confident you are in finding work. I try not to let my warchest drop below 12 months of dividends, 18 months is better.

Assuming you take £8060 salary and dividends up to the maximum threshold, which would be £34,940, you would need to generate £43,675 of profit before corporation tax to pay that much in dividends (which come from your profits after tax). Add back your salary of £8060 plus any expenses (try and calculate a rough estimate - accountancy fees, travel and subsistence costs, software, hosting etc.) - consider this your break even point - the amount you need to turn over in order to sustain that level of salary and dividends each year.

80% of any turnover above your breakeven point goes towards building up your warchest (I realise this is simplified somewhat because if most of your expenses are travel-related, then they will obviously go up relative to the amount of work you have. If you mostly work remotely then most of your operating costs should be relatively fixed).

[mudskipper]

If you have been working PAYE since April, you will have used up a considerable amount (possibly all) of your tax free allowance.

[missinggreenfields]

If you have been working PAYE since April, you will have used up a considerable amount (possibly all) of your tax free allowance.

GPWM