Have I got this right....

[SimonMac]

OK, now I know pretty much every first response will be you need an accountant and I have one lined up already, but want to make sure I know (or at least sound as if I know) what I am talking about when it comes to the basics.

I am a LTD company where I am the only director and shareholder, if my contracts earn the company £50,000 over a financial year, I assume I would pay myself a salary and it would probably be best to be minimum wage, but is there a set number of hours I need to be salaried for, I assume if its over 16 hours it would be classed as full time. For this I personally would need to pay any required NI and Income Tax at the obligatory rate. For simplicity sakes lets say I have a salary of £10,000, leaving £40,000 in the company, from this I would deducted any expenses incurred while fulfilling the contract, and any purchases that I make on the companies behalf (not likely to be much, but I know I will be buying a laptop to keep things separate from my personal system and some office equipment). This would then give me my companies profit before coperation tax (again for simplicity say £35,000), which would be subject to 20% tax leaving me £28,000 which I can use to either keep in the company or pay myself in dividends which I personally would be subject to 10% tax.

I know this would get complicated if I were to VAT register or fall under IR35 but have I generally got the jist of it?

[xoggoth]

Close.

I assume by £10k salary you mean gross salary, ie what you get+income tax+employee NI. The company pays those on your behalf and gives you the net amount. Only the gross figure appear in the accounts and is deducted from profits. The company also pays employer NI on your salary which also appears in the accounts and is also deducted from profits.

Since you have paid CT the 10% is an amount you are deemed to have already paid provided you are a standard rate tax payer. You are subject to a further personal tax only if you are a higher rate taxpayer.

PS Think CT is 21% now. I forget.

[Craig@Clarity]

You have got the general gist. Your turnover less your expenses less your gross salary less employer's NI give you your profit. Corporation tax is 21% so the remaining 79% of your profit is the maximum dividend you can declare.

Whilst you pay a dividend from the company to yourself as sole shareholder, it is known as a net dividend. If in this example, if you had a fresh tax year starting 6 April and the only personal income was £10k gross salary, you could pay the rest of the profit of £27,650 (£35,000 less CT at 21%) as a net dividend without actually paying any tax.

Gross dividends are taxed at 10% whilst below the higher rate tax band but you also get a 10% tax credit so it's "notional" as they say. Hope that helps.

[SimonMac]

Cheers, just wanted to make sure I knew the basics before going to the accountant, one final thing, I have noticed on here people talk about client and non client expenses is there clarification as to which is which?

[escapeUK]

You have got the general gist. Your turnover less your expenses less your gross salary less employer's NI give you your profit. Corporation tax is 21% so the remaining 79% of your profit is the maximum dividend you can declare.

Are people actually paying NI? I assumed everyone was doing the same as me, paying myself £5715 salary a year which is the threshold for NI, and then taking the rest in dividends.

Every penny given to the government is a penny wasted.

[northernladuk]

Cheers, just wanted to make sure I knew the basics before going to the accountant, one final thing, I have noticed on here people talk about client and non client expenses is there clarification as to which is which?

Not sure I have seen that term but your expenses can be..

Expenses incurred while delivering your work. Flights, hotels away and the like as needed by the client. You would invoice these back to the client.
Expenses incurred whilst getting to your work, mileage, public transport etc. These you can pay yourself and expense them back to your company (or you use company credit card). These may be affected by the 24 month rule which is covered in great detail in recent threads and a sticky at the top of the page
Expenses incurred while running your company, computers, stationary etc etc. Again either pay them yourself and expense your company or pay on credit card.

Not sure how these relate to the terms you mention but does that help?

There are many many threads on here about expenses from company cars to xmas parties to buying work clothes. I think we covered most of them some time or another. The search button will help you find them.

[MarillionFan]

Are people actually paying NI? I assumed everyone was doing the same as me, paying myself £5715 salary a year which is the threshold for NI, and then taking the rest in dividends.

Every penny given to the government is a penny wasted.

I go for the lower amount. Even my account said she onlys pays herself £6k a year.

[SueEllen]

Your accountant will normally tell you the most tax efficient way of paying your salary.

Directors are exempt from the National Minimum Wage so you can pay yourself nothing if you so feel like it.

[SimonMac]

Your accountant will normally tell you the most tax efficient way of paying your salary.

Directors are exempt from the National Minimum Wage so you can pay yourself nothing if you so feel like it.

I assume you will need to pay yourself something to make sure you get your NI in

[SueEllen]

I assume you will need to pay yourself something to make sure you get your NI in

Yes if you are a director whose only source of income comes from the company it's a good idea to ensure you pay yourself enough to make sure your NI is paid.

Some people are directors of a company and have other sources of income/jobs or are students so don't actually want any income from that particular company as it screws up their tax or entitlement to loans/benefits.