How much do you pay yourself ?

[vince_labcoat]

Hello,

I have a LTD company and I've been advised to pay myself pretty much the minimum £6k and then £30k in Divs so not to pay the extra Tax. That £3k per month is enough for me and my outgoings so by the time I match my pension with another £6k and take my expenses out I'm left with a small but tidy sum which I have to pay CG Tax on. Been doing this for a few years so I've build up a nice little warchest (it really is quite little).

I have a few questions:

Firstly I've read that a few people are putting far more into their pension than their salary - I thought that this wasn't allowed and that you can only pay up to 100% or 3.6k whichever is the larger. Now I'd love to put in 12k per year, but I believe that I would have to increase my salary to 12k which means personal Tax and NI contris. Is this correct ? If I could get away with 6k Salary and 12k pension then I probably would.

2nd Question:

If I want more money in my bank account every month, is it better to pay a higher salary, or to take an extra 12k as Dividends ? Either way I would be up for more Tax, but which is more efficient ?

3rd Question:
I'm in a contract which may happen to finish at the end of my financial year. If I then go on the bench for a few months whilst looking for work, how do I pay myself. Luckily I'll have a Dividend to keep me going for 3 months, but what happens after that ? Clearly my small Salary won't keep me and Mrs Labcoat in food for long, so am I allowed Dividends if I haven't been working to earn profit ? Can you take Divs from retained profit/warchest that have been built up from previous financial years ?
Thanks VL

[northernladuk]

I have been ticked off for saying this in the past but never more than now is it so true.

All three of these topics have been well discussed on here, the one about paying divis from previous years profit has only been done in the last few days. The pension one is definately old hat...

I am not being facecious this time Mr Admin but my advice to you is to do a bit of a search and get all the answers you need. It will save time and you are more likely to get an answer cause people hate going over the same questions.

HTH (in a good way!)

[SueEllen]

I have been ticked off for saying this in the past but never more than now is it so true.

All three of these topics have been well discussed on here, the one about paying divis from previous years profit has only been done in the last few days. The pension one is definately old hat...

I am not being facecious this time Mr Admin but my advice to you is to do a bit of a search and get all the answers you need. It will save time and you are more likely to get an answer cause people hate going over the same questions.

HTH (in a good way!)

W.H.S.

And he is not being rude. He is actually being v. polite.

Also you have an accountant - you can ask him/her for what advice. Though if they are like lots they will have a guide and point you to that.

[malvolio]

WTheyS....

But read this anyway - <snip>

and while you're there have a nosre around. You may learn something useful.

HTH

[Moscow Mule]

1) you can put pretty much all of your money in a pension if you want

2) if you do the sums (don't forget NI) divis work out cheaper.

3) you're the director, it's up to you to run your business properly. Paying divis out of retained profit is ok, paying divis out of fictional future profits is not.

[northernladuk]

And just to show I am trying here is the thread about the divis in which year...

http://forums.contractoruk.com/accou...ious-year.html

[vince_labcoat]

Great thanks for the links - v helpful. I do have an accountant SueEllen but she tells me that I can only match my salary, but she also says that isn't necessarily stuck too. And as I see from other posts that many people claim to pay 6k salary while putting 25k into a pension I wonder actually how common or risky it is. Ideally I'd like to put more away into my pension whilst keeping my salary low, and if I need extra cash, take a larger dividends.

thanks
VL

[northernladuk]

Larger dividends from what? Are you talking about flexing your pension payments sometimes and putting less in it the months you need bigger divis or does your divi+pension not equal your full income and you have spare money in the account?

I read into your question you would put everything either in your divi or pension so how can you increase your divi when you want?

Just want to clarrify this incase there is a misconception here and if there is it is on my part not yours if that makes sense.

[vince_labcoat]

Hi NL,
I pay myself 6k per annum to minimise Tax and NI, and I pay 6k into my pension to match it 100%. I want to pay more like 12k pa into my pension, but I have been told that I can only do this if I increase my salary which will then bring Tax and NI into play. Other people here claim they pay more than their salary into a pension (I have read 25k) but isn't this risky ? If I can do this then I will, and if I ever need to get more money from my company into my personal bank account then I can just take more in divs than salary, and pay the Div Tax ? Whilst I'm in contract, my income will always be more than Sal + Div + Pension + Corp Tax

Thanks
VL

[GreenerGrass]

My accountant (SJD) hinted a while back that you shouldn't pay more than your salary amount into a pension, but were a bit vague on it (perhaps because HMRC guidance is not exactly clear).
Since then I've learnt from various people there appears to be no restriction on what you put into a pension as company contributions.
In terms of being "risky" you could argue taking it as dividends is more risky that pension contributions in terms of IR35 exposure.