How can I draw a salary from my limited company?

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I’ve started my own business so I decided to register a limited company because I was told that may be more beneficial in terms of tax and national insurance, but how do I actually take money from my company to pay myself a wage? Can I just spend the money as I please once it is in my bank account?

Answers

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You can take money from a company for your own use in four different ways:

  1. A director’s salary
  2. Shareholder’s dividends
  3. Reimbursement of expenses
  4. A director’s loan

All withdrawals must be accurately recorded, so any personal income must be drawn from your business bank account, paid into your own current account and recorded in your company accounts.

To pay yourself a salary as a director, you must register your company as an employer. This means you will have to operate payroll and PAYE. Your Income Tax and National Insurance Contributions (NIC) should be deducted by the company prior to your salary being paid into your account.

Salaries are a tax-deductible expense, so your company will not have to pay Corporation Tax or VAT on this money. You can reduce your personal tax liability by keeping your salary below the NIC lower profits limit (£8,060 2015-16) or tax-free Personal Allowance (£10,600 2015-16). The rest of your income can be topped up with dividends.

a year ago
 

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