Payroll service for Ltd company

[Joeuker]

Hi Gents

I been self employed through my Ltd company for 2 years. I have been recently been advised by my accountant to go with a 3rd party company to run a payroll service each month. This enables salarty to be paid into my private account each month and become an employee of my company.

My questions is .. DO I REALLY want to do that? what advantage is that to me? .. i can transfer a salary to my private account every month with out having to go through a 3rd party company for payroll service. Do I end up paying more TAX?

I am really lost and unsure what to do.. I am been pushed into this by my accountatnt saying best tax efficient method.

Any ideas on this will be great help!!!

Thanks

[Clare@InTouch]

It's a good idea to pay a salary in order to ensure you get full NI credit, but there's no need to use a third party company. You can do it yourself with the free CD HMRC send out each year.

Is there a reason your accountant won't do it for you?

[Wanderer]

Is there a reason your accountant won't do it for you?

Like Clare says, you should pay a salary (say 7,000) to keep up your NI contributions. Do you do this now? If not then you have to ask your accountant why they haven't done this for you. Or perhaps they are recommending an offshore scheme?

If it's cash flow you are looking for, you can take dividends monthly if you like. I'd say get an accountant on a monthly fee and get them to declare a dividend monthly for you plus a 7k/year salary to keep your NI contributions up to date.

[danielfreeman]

You should be paying less tax!

You should ideally pay yourself a minimum salary and take the rest as dividends as this minimises the amount of tax you will have to pay.

If you pay yourself a salary of £5720 p.a. (the National insurance threshold) that keeps your NI contributions up to date - entitlement to state pension, unemployment benefit, etc.
Above this amount you will start to pay class1 national insurance (11% up to the higher rate tax band) and your company will pay employer NI (class1 secondary) at 12.8%
If you haven't paid yourself this minimum salary then you may have "gaps" in your national insurance record. DON'T PANIC though. You can "Buy" these extra years back - although the cost has just gone up so definitely cheaper to get them for "free" by paying yourself this minimum salary.
There is no need to use a third party service. As others have said you can use the HMRC CD or use free services such as ::: Payroo.com - Free Online UK Payroll Software :::

Dividends are paid from corporate profits - upon which corporation tax will already have been paid - they come with a tax credit that means you will not pay any additional tax - so long as you are a basic rate taxpayer. The dividend tax credit is non refundable though so if you only pay yourself through dividends you potentially "waste" your tax free personal allowance.
Salary costs will be deductible for corporate tax purposes in the company as an expense but taxed as income for you as an individual at your highest marginal rate. However, for 2010-11 tax year you have a tax free personal allowance of £6475 so any salary up to this level would potentially be "free" from income tax (obviously this depends on what other taxable income you might have e.g. bank interest etc).

Your accountant should prepare the dividend vouchers and provide you with a template for the minutes of the directors meetings to approve the dividends. Dividends can be paid as frequently as needed.
Ideally you should keep your total taxable income such that you do not become a higher rate tax payer.

I am a qualified accountant (ICAEW) and... <deleted>

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