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Before you start making purchases for your business you need to know a little bit more about paying a salary. As well as, the choice to pay yourself dividends.
How do you go about taking a salary, when do you start paying yourself dividends as a shareholder and is there a way you can avoid paying more tax?
If you have ever wondered about these questions then keep reading!
As a business owner it is not recommended to take money from the business bank account without planning.
The best thing to do is to set a strategy to pay yourself with either dividends, payroll or both.
You can arrange to pay yourself a tax-efficient salary from the company.
For example, for start-ups the optimum path is to pay a low salary – and pay just enough National Insurance, so that you are still entitled to state benefits. This also has the advantage of lowering your corporation tax.
Based on your estimated sales for the year, it can also be advised to pay a dividend at the end of your financial year.
Every business is different and you should definitely look at your cash flow and monthly bookkeeping before paying yourself, because you need to see how much profit is left in the business. You must have a monthly profit to take a legal monthly dividend.
Why bother planning your pay?
The biggest reason is if you don’t follow the right procedure and planning HMRC may view your payments as ‘illegal dividends’. So you definitely don’t want to fall into this trap. There’s also penalties if you don’t submit payroll information on time AND if there are any inaccuracies.
Remember, if you are taking money from the company as wages or salary you need to register the company for PAYE. You will also need a payroll system to produce payslips and send details of PAYE to HMRC. All of this can be done by an online tax return service.
Every individual and business has a unique objective and different tax positions, so please make sure you get professional advice before making any decisions.
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