Stage 3 – Paying yourself (Ltd Company)
When you are a company director you will pay yourself the basic salary normally just above the national insurance threshold and the remaining money you take will be taken in the form of dividends.
The salary is normally set at the threshold when you start to pay national insurance contributions as an employee and when your company would pay them as an employer. It is important to realise that this threshold is different to the income tax threshold and is lower than the amount that you can earn and start to pay tax. As a company Director the minimum wage rules do not apply so you can pay wages equal to the national insurance threshold.
Any increase on this amount will lead to employee national insurance payments to be deducted from your salary and the company being liable to pay employer national insurance payments as well.
Company dividends are the company paying the profits that it makes to it shareholders. That is once all the taxes and expenses are paid there will be an amount of money that is left, this is money that can be paid to shareholders of the company in the form of dividends.
To receive a dividend a person as to be a shareholder of the company and the company must have the money to be able to afford to pay the dividends. Dividends are paid per share a person owns and can be paid during the year as frequently as you wish.
To make a dividend legitimate it must be recorded correctly that means a dividend statement and minutes for the dividend must be prepared. These should be kept safe so they can be included in the shareholders personal tax return.
As a director of the company you have the right to decide when to declare dividends and you can if you wish delay declaring them if that will mean less tax being paid.