As a company director, there are several different ways in which you can pay yourself a wage or a salary. When running a limited company, your personal bank will be separate from your company’s profits. In contrast, a sole trader would receive business profits into their bank account, on which they pay personal income tax.<\/p>\n\n\n\n
This means that your income as a company director will be separate from direct company profits. Therefore, you need to decide the best way of paying yourself from those profits. The two most common options are paying yourself a salary or paying yourself out of company dividends<\/a>.<\/p>\n\n\n\n This article will explain how a director can receive their pay and offer some advice on the best way to pay yourself as a company director.<\/p>\n\n\n\n Company directors often earn a salary as part of their position. In this way, the director is like an employee<\/a> of the business and may even have an employment contract. This is sometimes referred to as Pay As You Earn (PAYE<\/strong>). To receive a salary this way, an individual must register for the PAYE scheme with Her Majesty’s Revenue and Customs (HMRC<\/strong>).<\/p>\n\n\n\n The company will then need to deduct income tax from the director’s salary and Class 1 National Insurance Contributions. Then, the company will send this to HMRC recurringly (usually every month).<\/p>\n\n\n\n A company’s balance sheet will categorise employee salaries as a cost and often tax-deductible expenses. Essentially, the company will pay the individual before receiving tax on its profits via corporation tax.<\/p>\n\n\n\n As a result, many companies opt to pay their directors a small salary, then top the director’s pay with dividend payments. The salary often reaches the Personal Allowance rate of around \u00a312,000.<\/p>\n\n\n\n It would be beneficial to note that dividend payments typically receive tax at a lower rate than general income tax. In addition, adopting this approach allows the company director to receive other benefits, such as State Pension.<\/p>\n<\/div>\n\n\n\n Dividends are a payment made to shareholders of a company<\/a>. After the company receives tax at the corporation tax rate (19%), shareholders will receive their dividend. Most company directors are also shareholders so they can receive dividends alongside their basic salary. Therefore, the number of dividends they receive will usually reflect the number of shares they have in the company.<\/p>\n\n\n\n There are several benefits to receiving your payment via dividends rather than a basic salary. For example:<\/p>\n\n\n\n Dividends of up \u00a32,000 are tax-free, but any amount above that, will receive tax at roughly the following rates:<\/p>\n\n\n\nCompany Director’s Salary<\/h2>\n\n\n\n
Dividends<\/h2>\n\n\n\n
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