Reply to: Making my first company salary/dividend payment (SJD)

[kaiser78]

I was told to pay my sallary on the 19th of every month but forgot they they told me this, so sometimes i would pay 5months unpaid salery in 1 go purely because iIwasnt working so felt uncomfortable taking it out of my business bank account when the funds were not so plentyfull.

is that allowed, I was still paying the vat due on time

Nice beer sess was it ?!!

[trsisko]

I was told to pay my sallary on the 19th of every month but forgot they they told me this, so sometimes i would pay 5months unpaid salery in 1 go purely because iIwasnt working so felt uncomfortable taking it out of my business bank account when the funds were not so plentyfull.

is that allowed, I was still paying the vat due on time

[kaiser78]

In general terms I on average draw out daily rate * 10 from my limited company each month and let my accountant divvy up as salary/dividends when he completes my annual accounts. This leaves enough to cover any taxes and fees due plus a tidy lumpsum bonus each year

[mudskipper]

SJD recommended £7.5K to me, but said I could go for NMW if I preferred - tried to get into the whys and wherefores (plus the fact that I'm currently only working 2 days a week) but never really got to the bottom of it. I think the gist was that 7500 would allow you to pay a little tax and NI to keep HMRC 'happy'.

Anyway...

Like David, I was already in higher tax band based on permie earnings when I started contracting in October. However, because I'm now on a much lower salary for the rest of the year, tax goes back into standard rate, and I'm actually due a rebate with no further tax/NI to pay for the rest of the year. I imagine David will be the same - when you're taxed in permie world, they assume you will be earning at the same rate for the rest of the year. SJD did get the salary figures out to me fairly quickly, but if 'desperate' I'd suggest David pays himself say £500 salary to tide him over then makes a further payment of the difference when he's got the figures. I'm don't think the point at which you pay the salary, or if you were to split the payments matters.

[Andy2]

No they don't. Well, at least for the year 2008/09 year they recommended £7455 to me.

They recommended NMW to me ,which is about £11k
They told me that 90% of their contractor clients pay NMW

[xoggoth]

When I started using computers I had to load the operating system and compiler in on paper tape before starting to program. (Modelling wear rates in vertical spindle mills)

I must have been really patient back then, now I go berserk when the TV takes 2 seconds to change channel.

[northernladuk]

Nobody waits for anything these days.

It's the modern way.

If you tell the kids these days that just ten years ago you might have to wait a minute for a webpage to load over a 56K modem, and they were the fast ones, they look at you like you are from the stone age.

And if you try to explain to them that thirty years ago you had to wait five minutes for computer games to load from tape, keeping your fingers crossed all the time that it would be successful, well, they cannot begin to comprehend....

nice

[Gonzo]

And why not just wait until the 4th? will a couple of days, some of which the banks are closed anyway really make much difference?

Nobody waits for anything these days.

It's the modern way.

If you tell the kids these days that just ten years ago you might have to wait a minute for a webpage to load over a 56K modem, and they were the fast ones, they look at you like you are from the stone age.

And if you try to explain to them that thirty years ago you had to wait five minutes for computer games to load from tape, keeping your fingers crossed all the time that it would be successful, well, they cannot begin to comprehend....

[Mr.Whippy]

SJD say to pay yourself a salary of 12 grand a year!? WTF!? Not very good accountants are they?

No they don't. Well, at least for the year 2008/09 year they recommended £7455 to me.

[BolshieBastard]

Hi All,
I am in the process of making my first company payment to myself, in the form of salary and dividend. I should say I am with SJD accountancy, but as they do not go back to the office until the 4th I'm in need of a spot of advice.

The advice I recieved was to pay myself a gross annual salary of £12,000, i believe this is their standard advice. This obviously equates to £1,000 gross per month. I have recently sent them my P45 and they are setting up my payroll and inform me that they
"will advise you quarterly in advance of the monthly amounts you need to pay yourself as net salary and the small amount of tax and National Insurance to be paid for the quarter."

This is where I find confusion, do I therefore, pay myself £1,000 and the remainder in dividends (ignoring the money set aside for VAT), and then when i find out how much i should earn net (as i am already a in the higher tax band), pay the income tax, national insurance, and employers national insurance back from my personal account?

This seems wrong as paying the employers national insurance contributions back from my personal account cannot be correct.

Therefore, it would seem that I cannot draw salary until i find out the figures i should be paying myself net from the accountant, and therefore I cannot pay myself dividends until i pay myself the first salary (as the HMRC would hardly look favourably on this suspect)

Lastly, and perhaps a strange question, should I be paying myself a month in arrear, i.e. pay myself for Novemeber in December, sorry this probably sounds obvious but my accountant threw me a curve ball with an email she sent me and im a bit confused.

Thanks very much in advance from a slighty confused and currently unpaid IT contractor.

Regards,

David

SJD say to pay yourself a salary of 12 grand a year!? WTF!? Not very good accountants are they?

[Gonzo]

I have to say that I got bit muddled by the PAYE side of payments when I started out.

I formed my company and engaged an accountant before I got my first contract so did not set up the PAYE payments straight away becuase my company had no money.

Nine months down the line I got around to asking the accountant if I should have started paying PAYE

Back to the OP

Firstly, stop thinking like a permie.

Unless you have a signed contract of employment between yourself and your company (which is unlikely) then your company does not have to pay you anything via PAYE.

PAYE is just one way to take money out of your company and there are tax benefits and state pension entitlement reasons for taking some money this way over the course of a tax year.

As you have said that you are already in the higher rate tax band for this tax year I personally wouldn't have taken any further PAYE until April next year, but that is just me. In any case, your Company is not obliged to pay you salary for November and December (unless there is a contract of employment) if you don't want it to.

In the meantime you could always try and use the SJD spreadsheet to estimate the amount available for dividend. The £1,000 per month is the gross salary so some of that will go to you and some will go to the taxman on your behalf but the total is still £1,000 per month. On top of that there will be some employers NI contributions, I don't know exactly how those are worked out but they are not going to be more than £1,000 * 14%.

When you declare a dividend you don't have to take the full amount that the spreadsheet tells you is available. I always kept back some money in the company account.

Alternatively, this is the time of year where I used to try and stop taking any further dividends so as not to increase my tax liability further and if I needed the money I would overdraw the Directors Loan Account. There are potential pitfalls with taking this approach which are covered elsewhere.

USUAL DISCLAIMER: I am not an accountant. My advice is usually about right but not always 100% correct.

[northernladuk]

And why not just wait until the 4th? will a couple of days, some of which the banks are closed anyway really make much difference?

If you are really stumped for cash just withdraw what you need and pay it back a few days later?

[northernladuk]

Possibly, but should that really be a valid excuse if it were to be offered as such?

Client- "You didn't deliver xyz design on time, you're sacked"

Me- "Ah but Christmas got in the way"

Client- "Bo11ocks, you're still sacked".

Huh?

Thats a lot of bo**cks. The OP knew xmas was coming. He should have known firms close down over xmas and he needed a payment. He should have done something about it BEFORE SJD did what most companies do over xmas.

At least try and get your off the cuff scenarios correct when you are trying to make a point. Your example actually turns itself and proves that ME/OP is in the wrong for not planning xmas.

[xoggoth]

My experiences exactly Mr Bloggs. Didn't have internet when I started so was even less excuse. Only one of my several accountants ever provided a written list of things to be aware of. The rest never told me anything unless I asked and if I had known what to ask I wouldn't have needed to.

[xoggoth]

I would think they mean pay 1000 salary gross per month as that has been fairly standard advice since yonks. You transfer to your account the net amount after deducting income tax and employee's NI. Employer's NI is not included in gross salary.

On that salary you can pay tax/NI quarterly and that would be usual. Payable by the 19th of Jan, Apr, Jul and Oct. The company pays the employer NI and (on your behalf) the employee's NI and tax. Keep separate records of employer and employee NI. There is some guffy and pointless form called P11 you are supposed to keep for your records, and employee's NI appears in accounts.

Divis you just pay to your account. The tax on them is a notional thing deemed to have been covered by CT, unless you are higher rate when they will want more later from you. Note in company book, do a search on here for tax certificate.