As a director and a shareholder of your own company, you will likely be excited when your hard work pays off, and you finally start to turn a profit. However, you may not know if you can draw a salary or move money freely between your company’s bank account and your own. This article will explain how you can pay yourself as a director and what you legally can and cannot do. It will also briefly outline some of the tax implications of a director’s salary.<\/p>\n
A company is its own legal entity. That means it can own property, and any money paid to it must be accounted for. Therefore, you should record all transactions and expenses and ensure that you properly account for any payment you authorise your company to pay you.<\/span><\/p>\n As a director-shareholder, you are in the peculiar position of both owning your company while also being responsible for its management.\u00a0<\/span><\/p>\n This is why it is helpful to think of yourself as having two hats, your:<\/span><\/p>\n You cannot wear both simultaneously, and this has important implications when it comes to payment.\u00a0<\/span><\/p>\n<\/div>\n Shareholders have a right to share in the profits of the company. Therefore, because you are a shareholder, you may intuitively feel as if you should be able to move money around as you see fit, such as between your company’s bank account and your personal one. However, legally, you cannot do so.<\/span><\/p>\n This applies even if you are the sole shareholder, sole director, and no one else works for you.\u00a0<\/span><\/p>\n<\/div>\n As a company director, you are bound by many duties and obligations. Some of them are specific to remuneration (i.e., paying yourself), such as:<\/span><\/p>\n Other duties are more general, such as the duty to exercise reasonable care and skill concerning your powers and responsibilities, including how you should account for your company\u2019s finances.\u00a0<\/span><\/p>\n You must keep this in mind as if you do not lawfully pay yourself, you will be in breach of your duties and can be held liable.\u00a0<\/span><\/p>\n<\/div>\n There are two primary ways you can pay yourself as a company director by:<\/span><\/p>\n Additionally, there are two other ways you can lawfully issue yourself money as a director:<\/span><\/p>\n Directors have an entitlement to a salary from the company.<\/span><\/p>\n Whenever you pay yourself a salary, this is considered an expense from the company’s perspective.\u00a0<\/span><\/p>\n This means your company does not pay tax when it pays you (subject to National Insurance Contribution requirements). However, you will owe tax on the salary in your personal capacity.\u00a0<\/span><\/p>\n You can pay yourself as much as you would like, but the tax system tends to determine how much directors pay themselves (see below).\u00a0<\/span><\/p>\n As a general rule, whenever you pay yourself a salary, your company must file the proper paperwork with HMRC through the <\/span>Pay As You Earn scheme (PAYE)<\/span><\/a>. Therefore, you should stick to a consistent payment schedule, such as weekly or monthly.\u00a0<\/span><\/p>\n<\/div>\n PAYE<\/span> is not a tax. Instead, it is a system that allows your company to ensure it is meeting its obligations to:<\/span><\/p>\n To fulfil these obligations, you will need to:<\/span><\/p>\n A dividend is a payment authorised by the company’s directors to the company’s shareholders. Your company can only pay the dividend out of its post-tax profits.<\/span><\/p>\n A dividend is considered one of several company distributions. You cannot declare any distribution unless the:<\/span><\/p>\n For most small companies, these two requirements will go hand in hand. Suppose you have current financial liabilities (such as any debts owed to a supplier or service provider in the accounting period). In that case, you must ensure you have enough cash on hand to meet these liabilities.\u00a0<\/span><\/p>\n<\/div>\n If you make a dividend payment with no available profits, you can be held liable for making an unlawful distribution. One potential penalty could be that you will be ordered to pay back the dividend.\u00a0<\/span><\/p>\n If you wish to issue a dividend but are uncertain if your company has made a profit, you should consult your accountant.\u00a0<\/span>Because the dividends come out of your company\u2019s post-tax profits, you must set aside 19% (the current corporate tax rate) to cover your tax liabilities when your company\u2019s taxes come due.\u00a0<\/span><\/p>\n While you can declare a dividend as many times in the accounting period as you wish, it is often sensible to issue dividends quarterly.<\/span><\/p>\n<\/div>\n If there are other shareholders of the same class, you must ensure they receive the same dividend amount per share as you.\u00a0<\/span><\/p>\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n\n
You as a Shareholder<\/span><\/h3>\n
You as a Director<\/span><\/h3>\n
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How Do I Pay Myself?<\/span><\/h2>\n
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Payment by Salary\u00a0<\/span><\/h3>\n
PAYE\u00a0<\/span><\/h3>\n
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Payment by Dividend\u00a0<\/span><\/h3>\n
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Other Shareholders<\/span><\/h3>\n