Do I need to pay myself a wage initially?

[bungy6]

Hi everyone,

I am a complete newbie so appreciate all of your knowledge and experience and apologise if I am being stupid!

At Christmas I was made redundant from a permanent role where I had been for over 18 years. I therefore got a nice sized redundancy package. I have been looking for work since and due to my skills I have today been offered my first contract role that will start in 3 weeks and currently last for 6 months.

I have started to setup a limited company, but what I would like to know is:
that as I have a large redundancy payment to live on, can I work my contract without taking a wage for say the next 6 months which is the length of the contract and if needed start taking a wage after this if I do not find another role straight away?

In my head, I'm trying to protect myself as I will not have another redundancy payment when the contract ends, but will have money in a company account that I can use as a wage in 'x' months time.

I guess if this makes sense I would just have to pay 19% corporation tax on profits?

The question you may ask is why not take a wage and save the redundancy payment as a fallback, well I have just paid alot of tax on the payment and I'm not great at stopping myself 'wasting' money, therefore I know that I cannot touch a company account without the tax man calling!!

Again, sorry if this is a strange question and thanks in advance for your replies.

[Jessica@WhiteFieldTax]

In principle yes, but chat to your accountant to make sure (a) you are using all allowances appropriately and (b) that you are accruing a minimum NI payment (probably an issue for 18-19 not 17-18) - tweak the figures right, and thats a reporting issue in the 0% NI band rather than hard cash.

Also check the tax status of your redundancy payment, its an area thats changed a lot, and better to be prepared if a tax bill may arise on it.

[northernladuk]

A good accountant will sort this out for you no problems. If you haven't got one. Get one sharpish.

[tarbera]

Remember to keep looking for new contracts until you have your feet under the desk at this offer

[WordIsBond]

If your redundancy payment was paid as a lump sum:

It is all taxable in 2017-2018. In that case, any other income before 6 April is likely to be taxed at the higher rate, which probably isn't a good idea. However, in the unlikely scenario that you aren't already in higher rate taxation, you should probably pay yourself a monthly salary of £680. You probably can't get that done before 5 March, so it is just one month, from 6 March to 5 April. You would pay basic rate tax on it, but no National Insurance, and it would save Corporation Tax, so it is basically tax free. Put it in personal savings.

Starting in April, you can pay yourself £702 / month without incurring any Income Tax or National Insurance, and that is a business expense so you also won't pay Corporation Tax. So you'll want to do that every month. Be sure to report it monthly (RTI) to HMRC as salary. You should do this even if you don't need the money -- you are getting tax-free funds out of your company. Put it in personal savings.

If it is paid monthly over the six months:

You still might want to pay £702 / month from April on. You'd again likely be paying basic rate IT, but no NI, and the CT savings would effectively negate the Income Tax cost. The picture for this changes only if the monthly redundancy payments are going to end up putting you into higher rate tax for the year. If that's the case, then you probably should not be here, you've got the funds to pay an accountant for advice.

And really, there's enough variables here that you really do need to get advice. But you can start by reading the stuff under the "First Timers" link on the right of the page under "CUK Navigation." Then, you'll know enough to get an idea whether the accountant you are talking to is an idiot or not.

[MB2]

As a company wages will be paid before corporation tax is deducted. You should pay yourself up to your personal allowance (and I would suggest dividends after that of at least 5k) but anything that is costing you less than 19% is more tax efficient being taken from the company then left in.

An accountant will guide you but unless the company needs the money you would be better paying yourseld I expect. You could loan your company money via your DLA if you wanted to "ring fence" your redundancy in the ltd. maybe ?