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How Much To Pay Yourself?
Newsletter issue - April 2012.
As the director and shareholder of your own company you can decide how much salary to pay yourself each month, in order to use your personal allowance in the most tax efficient way. As a director of your personal company you do not have to pay yourself the national minimum wage unless you have an employment contract with your company.
From 6 April 2012 the tax free personal allowance is £675 per month (£8,105 per year), so you could take a salary at that level and pay no income tax. However, the monthly thresholds for paying class 1 national insurance (NI) are: £634 for employees and £624 for employers. If your salary is £675 gross per month, your company needs to deduct NI of £4.92 and pay employer's NI of £7.04 on top.
If you take a lower salary of just over the NI lower earnings threshold of £464 per month you will get the NI credit, so your wages count towards your state pension entitlement, but you don't pay any tax or NI and neither does the company. However, at that annual salary level (£5,568) you will be 'wasting' £2,537 of your tax free personal allowance. At £624 per month there will be no NI to pay and you only have £617 of unused personal allowance, so this is likely to be more beneficial.
As a director's salary is an allowable expense for Corporation Tax purposes it is always beneficial to pay yourself a salary but talk to us first about the best salary level for you. The correct procedures also need to be in place when paying a salary and we will also need to take into account your other sources of income, as you may be using your personal allowance elsewhere.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
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