How much to pay onesself

[Wazcov]

Hi All,

I've fairly recently started contracting under an Ltd. So far I've only taken my tax-free dividend of £5k so that in this tax year I don't have to deal with working out a self-assessment based on what I'd earned from my full time employment + my own income.

However, as from 9th April (next tax year) I'll be paying myself a salary, and I'm now trying to work out how much to pay myself.

I've read a lot online about paying yourself £702 a month plus a one off £2000 dividend [1] [2] to be under the new rates and thresholds for the 2018/2019 tax year [3].

This makes completely tax free income of £8,424 a year. Plus the dividend to be £10,424. I can top up to my personal allowance of £11,850 by adding £3,426 but I'll pay 7.5% dividend tax and 12% NI on that extra £5,426 (2k dividend not included in taxable income).

However, given all the advice I read about online about paying oneself that much to avoid paying tax or NI where not needed, but I don't really get the point. If the money sits in the business account, I'm going to have to take it out somehow one day?? Unless I go through liquidating companies yearly, but that's not ideal. Futhermore, If I want a mortgage, they aren't gonna give me a very good one for an income of just over £700 a month.

So given that, what and how do people actually pay themselves?

Thanks in advance!

Wayne

[1] Salary and Dividends for 2018 / 2019
[2] How much to pay yourself from Limited Company 2018/19
[3] https://www.gov.uk/guidance/rates-an...s-2018-to-2019

[northernladuk]

So many things wrong in your post and far to many topics to cover. Might seem like simple questions to you but it's covering a ton of stuff so we can't even begin to give you the knowledge you need.

Go get an accountant and go read the newbie guides to the right hand side. If you have any specific questions that your accountant cannot help with then try a search using the google method below.

To search the forums use <keyword> site:forums.contractoruk.com

Did I say get an accountant? Because you need an accountant.

[northernladyuk]

Hi All,

I've fairly recently started contracting under an Ltd. So far I've only taken my tax-free dividend of £5k so that in this tax year I don't have to deal with working out a self-assessment based on what I'd earned from my full time employment + my own income.

However, as from 9th April (next tax year) I'll be paying myself a salary, and I'm now trying to work out how much to pay myself.

I've read a lot online about paying yourself £702 a month plus a one off £2000 dividend [1] [2] to be under the new rates and thresholds for the 2018/2019 tax year [3].

This makes completely tax free income of £8,424 a year. Plus the dividend to be £10,424. I can top up to my personal allowance of £11,850 by adding £3,426 but I'll pay 7.5% dividend tax and 12% NI on that extra £5,426 (2k dividend not included in taxable income).

However, given all the advice I read about online about paying oneself that much to avoid paying tax or NI where not needed, but I don't really get the point. If the money sits in the business account, I'm going to have to take it out somehow one day?? Unless I go through liquidating companies yearly, but that's not ideal. Futhermore, If I want a mortgage, they aren't gonna give me a very good one for an income of just over £700 a month.

So given that, what and how do people actually pay themselves?

Thanks in advance!

Wayne

[1] Salary and Dividends for 2018 / 2019
[2] How much to pay yourself from Limited Company 2018/19
[3] https://www.gov.uk/guidance/rates-an...s-2018-to-2019

You need conversations with two specialists:

- A specialist contractor accountant (hopefully you have one already)
- A contractor specialist mortgage broker (the old man deals with such things so he can recommend one).

[Wazcov]

So many things wrong in your post and far to many topics to cover. Might seem like simple questions to you but it's covering a ton of stuff so we can't even begin to give you the knowledge you need.

Go get an accountant and go read the newbie guides to the right hand side. If you have any specific questions that your accountant cannot help with then try a search using the google method below.

To search the forums use <keyword> site:forums.contractoruk.com

Did I say get an accountant? Because you need an accountant.

Hi northernlad

I appreciate the response, but you're gonna have to give me a bit more than "you're wrong". I got most of this info from a good few hour chat with my accountant, and referenced the accountancy and gov websites so can you give me a direction as to where I'm wrong?

[northernladuk]

Hi northernlad

I appreciate the response, but you're gonna have to give me a bit more than "you're wrong". I got most of this info from a good few hour chat with my accountant, and referenced the accountancy and gov websites so can you give me a direction as to where I'm wrong?

Not really wrong, just uninformed. For example, the comments about mortgages. No problems getting mortgages for contractors but it's a whole topic to be explained. Just too much to feed you from your post.

Get an accountant and let them advise you what the best payment schedule is for you etc.

Don't forget the newbie guides on the right as well.

[SicsyBoy]

EDIT: Damn you NLUK's! Not only did I miss my chance to beat the "old man" by responding with the infamous catchphrase, but realise after posting this my comments are now pretty much redundant after you both responded with your own sage advice

Futhermore, If I want a mortgage, they aren't gonna give me a very good one for an income of just over £700 a month.

Not sure if this is of any use, and I'm sure there are plenty on here who know a lot more than myself about the ins-and-outs of lending but I've noticed something that is perhaps obvious in that different lenders seem to have different criteria.

EG based on recent conversations with lenders, Nationwide seem to base their decision on salary and dividends, whereas HSBC seem more concerned with the profit in the business and less concerned with dividends (which seems fairer on me!)

If I was in your position, I'd maybe have a chat with someone who understands the contractor mortgage market... there seem to be plenty of specialist brokers out there for example?

[malvolio]

And go to www.ipse.co.uk and get their Guide to Freelancing and read it

[northernladyuk]

Hi northernlad

I appreciate the response, but you're gonna have to give me a bit more than "you're wrong".

You are new!

[rocketjet]

Efficient tax planning should come from your accountant as that’s what you pay them for.

[amanwhoisquiet]

I got most of this info from a good few hour chat with my accountant

Hi. It really sounds like you have very poor accountant. I understood more about how I could pay myself through contracting by reading the introductory guides and brochures the accountant sent me before I even engaged them.

Getting a mortgage deal/in-principle is sometimes doable on your dayrate alone. Seriously, just google 'contractor mortgages', or use NLUK's search advice for this forum.

You should be able to draw dividends at will to get your personal income up to what you want/need it to be, up to the limit of your corp's profit and your appetite for the tax it attracts.