How to Pay Yourself as a Ltd Company - Directors Salary 2020/2021 - Dividends vs Salary UK

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Honest Money

Honest Money

Gün önce

YORUMLAR: 959
Chris W
Chris W 10 aylar önce
I love that there's no fluff - you just explain it all concisely in 12 minutes. Perfect.
James creasey
James creasey Yıl önce
You forgot to mention a company pension. This is also a expense and can be used to lower your corporate tax. 👍
ANTONIOS
ANTONIOS 3 aylar önce
@Voodoo Motion That info is pure gold. Many thanks
Voodoo Motion
Voodoo Motion Yıl önce
​@Sandra thanks, I think there's a fair amount about it online. Provided you don't need a lot to live and have some savings with short term access such as savings account and ISA, then it's advisable to invest as much as you can (up to around £40K) into your pension. Just be smart with what money you can afford to live without until retirement, but make sure you do enjoy the years between. I'm not a FA, this is my personal outlook based on my age, family and lifestyle. Best of luck
Sandra
Sandra Yıl önce
@Voodoo Motion you should consider making a video about that. I'd gladly watch it and learn :)
Voodoo Motion
Voodoo Motion Yıl önce
@Mark Woolgar Private pension is definitely the way to go to save tax upfront and give your pension more to play with. If you've paid off your mortgage and can get by on the £12,500 pa, you're laughing. Pay zero tax until you reach 55, then take 25% tax free lump sum and pay either zero tax on annuities up to the personal allowance or enjoy life a little more and pay the tax :) hopefully they don't change the rules! Apparently they're already agreed to increase the age from 55 to 57 in 2028.
Mark Woolgar
Mark Woolgar Yıl önce
Your company can pay your pension ideally a SIPP 40k tax free. So no tax on first 40k. Basically if you’re smart you could earn 80k and only pay 5k tax
OD
OD Yıl önce
What I've seen a lot of people do in my line of work was create different ltd companies for different functions ie manufacturing, warehousing, installation, retail. All of a sudden you have 4 sources of income from what is effectively one business. I also have access to wage-rolls though and sometimes the disparity is quite enlightening. I remember seeing a swimming company which turned over £3m a year, 16 staff with a total wage-roll of £160,000 so average £16k each, the sole director's salary and dividends on the other hand were enormous comparatively. But hey that's capitalism I suppose, it's just interesting looking at all the different companies and seeing who's generous/"values their people" and who makes Scrooge look like a philanthtopist. The ones who are the actual shitbags though imo are the ones who's insolvency cases I come across, then you look at the statement of affairs and see £100,000s in unpaid employee wages. This is quite frequent in contracting companies. Imagine being one of those guys, employees are not secured creditors so they are quite far down in the pecking order when assets are being liquidated and creditors paid. I'm not an expert on this stuff by any means but personally I think it should be written into law that employees are secured creditors and preferably should be the first to be paid out of company assets as they need it far more than the bank etc.
Charles Mensah
Charles Mensah Yıl önce
Pure gold watching this. Really useful information here! I’d love to see a breakdown with tax and NI with a limited company and a day job (full time) if it’s in the pipelines 🙂
Kristian Dimitrov
Kristian Dimitrov Yıl önce
@Patrick Holtz No he doesn't, he clearly says that this is with no other income considered
Patrick Holtz
Patrick Holtz Yıl önce
He provides this at 9:20min in video
John Martin
John Martin Yıl önce
This video is absolutely excellent. I have returned to it so many times over the past year. Brilliantly put together, clear and concise. Jolly good show old chap! Hopefully you can do the same every year! Much appreciated.
M K
M K 9 aylar önce
Couldn't agree more john.
Claire Houli
Claire Houli 4 aylar önce
Absolute gold! I finally understand why my accountant uses certain figures on my returns. Thank you so much!
Peter Cooper
Peter Cooper Yıl önce
An additional point to bear in mind is that once your income passes 100k you gradually lose your personal allowance, so your marginal tax rate effectively feels like 60% for a while (40% plus the 20% you’re repaying on the lost PA). Some people at this level limit their income or do salary sacrifice to stay at or under 100k or spread dividend payments out to the next tax year.
Bobby De La Vega
Bobby De La Vega Yıl önce
What awesome content Darren; Seems like you've been presenting for years, really well delivered and recieved. Thanks my man! Bob :)
Iqra DAM
Iqra DAM Yıl önce
This was so easy to understand, I think it's a benefit for us/me that you're not an accountant!! You made something hard to understand so digestible and easy to grasp. Thanks so much!!!!
GameGod7
GameGod7 11 aylar önce
IDK dude, this video still felt incomprehensible to me!
Mark Bird
Mark Bird Yıl önce
@Mindis Gl Accountants are free as they come off your tax liability...why wudnt you?
Jivan Pal
Jivan Pal Yıl önce
@Mindis Gl, you're paying for someone else's time and experience. As with every service you pay for, it's just a trade off between spending £100 once a year to get it right or spending a bunch of time yourself to find out all the details and also potentially get something wrong. Let's say you spend 10 hours the first year to research this, and 3 hours every year (including the first year) to actually file your tax return, and you value your time at £20/hour. Then it only becomes cost effective to do it yourself rather than have an accountant do it for you after you've done it yourself for 5 years.
Mindis Gl
Mindis Gl Yıl önce
Accountans are rip offs they want us to think that's is so difficult and hard to do so they can get they pays as for example confirmation statement takes 5min to do normally accountans charge 99+vat for that
Sam Ev
Sam Ev Yıl önce
This video is great! So clear, it's cleared up a lot of questions I had and given me some extra knowledge I didn't know I needed. One question however...how does this apply to side hustles? So for example: someone earns £30k for their day job, what's the best course of action then?
Paul Child
Paul Child Yıl önce
Depends how much your earning on the side. Anything under 20k (I.e total income 30k + 20k) means your still sat at the 20% tax bracket. Setting up and running a limited co to make the 20k work for you isn’t worth it. You’re better off (if you want to be fully legit) declaring the additional income as self employed. Still some admin as you need to register for self assessment , but not as arduous as the admin and cost associated with running and administering a limited company.
Raavan Shivaa
Raavan Shivaa 11 aylar önce
Great stuff, brother 👏. You've done all of us a great service. Sure beats the hell out of going to the tax office.
Yalla Learn Arabic
Yalla Learn Arabic Yıl önce
Hi Darren, thank you for this useful video and amazing content. What is your opinion if some is already employed (so already paying tax at 20 or 40 percent and already beyond personal allowance) and wants to earn extra money..would it be better to use ltd company or sole trader?
Craig F
Craig F Yıl önce
Great video and really enjoying the others on your channel. Quick question, what's your views on taking money out as Directors Loans?
dominic everard
dominic everard 2 yıl önce
That was put across in an easy to understand way. Good to know how much can be saved via running your own business. Would be interesting to see how this works (dividends side of things) with others being a part of the business, such as a spouse or family member.
James Grant
James Grant 4 aylar önce
@Honest Money is this the same as if U.K. getting rental income ? I make 40k in rental income Dudley I can pull out more than just 14k ?
Patrick Holtz
Patrick Holtz Yıl önce
Dividends are payable based on each persons shareholders %
Honest Money
Honest Money 2 yıl önce
Thanks Dominic. If your spouse has shares then they are also entitled to the £2000 tax free dividend allowance, however, I haven't actually done this myself so definitely check the rules with an accountant 👍
Andrew Davidson
Andrew Davidson 8 aylar önce
This is a great video, well done. Question: Is it possible to pay yourself solely via dividends and nothing via salary? (tax free allowance used up via other income sources, ie rental incomes). In my question there would be no salaries paid out from the ltd company, only dividends to shareholders.
Luke Houghton - Wedding Videographer
Luke Houghton - Wedding Videographer 3 aylar önce
Yes i would like to a video on this. Where you have another source of income, such as a main job, but then have a ltd company on the side. Be nice to see your thoughts on the best way of extracting money in this situation.
serpentinefireball
serpentinefireball Yıl önce
This is amazing! A complete breakdown and straight to the point! This kind of content is so needed
Thomas Smith
Thomas Smith Yıl önce
Hi Darren, it is really a very helpful video. Thanks a lot. I got stuck at the stage of setting up my own pension scheme. How am I going to get any pension plan contributions if I go for the Lower Earnings Limit threshold? Do you mean to register as an employer at one of the pension providers such as NEST?
Anil Paul Melitt
Anil Paul Melitt Yıl önce
This level of simplicity in explanation (without jargon) is what I've been looking for almost a year. Two questions 1)can you please explain how an electric car purchase works out in an ltd company scenario? 2)do you recommend using an online tool (like QuickBooks) instead of an accountant for ltd company tax needs?
UnknxwnXDany
UnknxwnXDany Yıl önce
1. Is the electric car only going to be used for business purposes? Or also used by the director for personal use? 2. I would not recommend using a software instead of having an actual accountant. Find an accountant that has a good reputation, has qualification and has experience. A good accountant will always be able to save you money. Much more than using just a plain old software. ~ from a part qualified accountant who has over 2 years experience in accounting.
Jon Fry
Jon Fry Yıl önce
Great explanation thanks. It’s worth also considering the Employment Allowance that can exempt the employer from upto £4000 of NI contributions allowing the full £12500 to be taken as salary.
Aitch
Aitch Yıl önce
EA cannot be claimed if they are the sole director/employee.
Maria A
Maria A Yıl önce
Excellent video! Really enjoy all of your videos so far - found you today and subscribed instantly! One small point is that Employers NI is tax deductible for corporation tax purposes so there is a CT saving of £818 if paying yourself via PAYE which would bring the 'Worse Off' figure to £4,805.34 rather than £5,623.71.
Gavin Waterman
Gavin Waterman Yıl önce
Some life changing information in this presentation, I'm working towards LTD Company and have spent some time typing out the information from this presentation and have delved into a Lawpack book to get the rest. The Pension bit was really helpful and I'm always dubious about giving money to someone who isn't necessary going to look after my needs as I get older. I'm now going to start paying myself a salary and grasp the bookkeeping in more depth. An excellent 10/10 presentation!!!
Denis Barbieri
Denis Barbieri Yıl önce
I’m really thankful. I’m just starting my limited company with similar figures to your example and this was clear and exhaustive. Thank you, I will definitely follow after this.. Thank you for taking the time to make this video and the clear presentation. 👍
Bauke van Gameren
Bauke van Gameren Yıl önce
Great video, very high quality. As you increase salary the dividend and corporate tax reduce, While the national insurance increases: Dividend tax + Corporation tax = 7,5% + 19% = 26.5%, National insurance = 12%+13.8% = 25,8% So isn't 26,500 the best amount? (Salary - Threshold to start paying dividend tax)
Bountiful Me
Bountiful Me 3 aylar önce
This was brilliantly explained, clear and without any waffling. Thank you
Liam Pallett
Liam Pallett Yıl önce
Great video Darren, thank you so much. At risk of asking a silly question here but as you can only draw the additional dividends from last years profit, do you have to wait a year when you first set up? I'm just thinking how it would work from a cash flow perspective if I was only paying myself the basic salary for the first year i'd find it hard to pay my bills and live? If that makes sense
Harry
Harry Yıl önce
You can in effect draw dividends throughout the first trading year, then at the end of the financial year you calculate your profit which will enable these to be legitimate dividends. Worth noting that if there isn't enough profit to cover what has been drawn then there are some pretty serious implications - definitely recommend engaging professional advice prior to this.
WednesdayBlues
WednesdayBlues 2 yıl önce
Thanks for the excellent explanation Darren, as a new sole director of a limited company I found it easy to grasp in plain English, nice and simple. One query though, I've seen somewhere that the flat rate HMRC allowance for using your home as an office has gone up to £6 p.w,/£26 p.m. for 2020/21. Is that correct?
Larry
Larry Yıl önce
@Honest Money, It's been 4 months since you commented this. There is still no 'pinned' comment. (There are a few people who read through all comments)
Honest Money
Honest Money 2 yıl önce
Thank you for the feedback and for the information, you are right 👍 I'll add a new pinned comment to this video with the correct information 😃
RiverCoast
RiverCoast Yıl önce
Thanks Darren, your videos are great. I gather that Directors are classed as employees and pay Class 1 primary National Insurance on annual income from salary and bonuses over £9,500. The company will pay Employer's class 1 NI contributions on salaries over this level. If the Director in question already has an existing full time job and a salary which they already class 1 employee's NI on then would this affect the above or would their pay as a Director still be exempt from NI up to the £9,500 threshold? It does not seem clear whether the existing salary means that the Director (and company) would pay NI on all of their director's salary due to them having an existing salary from their job which attracts NI contributions already. Thanks
Andy J
Andy J Yıl önce
Very informative thanks, but, if I’ve modelled this correctly in Excel, paying salary of £9,500 and dividends of £30,500 delivers a slightly higher net figure of £32,194.24 (a whopping £37.78 more to blow on living the high life :)). By my reckoning this would incur £5,795 corporation, £98.26 business NI and £1,912.50 dividend tax.
Arsalan Rahi
Arsalan Rahi 2 aylar önce
Hi Andy, would you mind sharing your excel template and accounting template thankyou
Erhan Ekmekcioglu
Erhan Ekmekcioglu 2 yıl önce
Thank you Darren, it is a very informative video. What is your general opinion for someone who is already earning on the higher-rate tax band to get into selling on Amazon or any e-commerce platform - as sole trader (all profits income taxable and NI payable) or limited company (only dividends, no directors salary)? It looks like a combined corporation tax and dividend tax (at higher-tax band) is as much as the income tax, or am I missing a point?
Honest Money
Honest Money 2 yıl önce
That does appear to be the case, however, I would recommend discussing this with an accountant as there are other potential tax saving opportunities and benefits of going Ltd over sole trader (especially when selling products to consumers).
T
T Yıl önce
So helpful to have to up to date information explained in a straight forward way. Would be great if you could make a video on self employed VS limited company.
Last of the famous
Last of the famous Yıl önce
I have done both the self-employed sole trader , and now because of customer requirements have a limited VAT registered company. Both have their pros and cons , the self-employed sole trader as a construction industry worker I get tax deducted at 20% from the company I work for , as a VAT registered limited this very rarely happens, the advantages are that as a sole trader once the 20% is deducted the rest of the money is yours, as a limited company you are responsible for every penny and it's not your money it's the company's money.
Markskoda
Markskoda 5 aylar önce
This video has answered so many questions that I have had while setting up a limited company and trading for the first three months. Grateful thanks.
Swarup Chakraborty
Swarup Chakraborty Yıl önce
Great video. It's bit quick but provides real good information. I made a simple excel file and now I know how to compare (Salary+Dividend) vs PAYE for different levels of payment to Director.
Faisal Raja
Faisal Raja Yıl önce
Explained very well. Makes things a lot simpler. Would appreciate if you could do a video regarding planning for pension efficiently.
Mufreddin Choudhury
Mufreddin Choudhury Yıl önce
Fantastic video! Very informative. A question about business expense, if you don't mind: can you claim back PPC advertising costs as a business expense??
KW
KW Yıl önce
Thank you, the paye vs divi calculation was interesting. Lines up with what I've been told but it's the first time I've fully understood it.
Jason Mann
Jason Mann Yıl önce
Really informative, thank you. From what I can gather, the same 40k wage for a sole-trader would take home £31,596.40, with almost 3k just for NI contributions? At what kind of salary does it make sense to switch up legal entities?
AC121!
AC121! Yıl önce
Excellent video! Really well explained, straight to the point and engaging. Brilliant! New subscriber! 👍🏽
Ian Harrop
Ian Harrop Yıl önce
Great video... you may need to rephrase the mileage claim from HMRC as the 45p upto 10k miles is the taxable allowance. So you don’t literally get £4500.
Robert Higgins
Robert Higgins 2 yıl önce
Really good video. But one thing I thought of, wouldn’t the employers NI contribution be liable for CT relief as an allowable expense. So there would be a 19% saving on employer’s expense. Either way I know it’s still going to be more expensive.
Ian Mears
Ian Mears Yıl önce
Yeah my accountant recommends a salary of 9.5K as the NI is 13.8% compared to the 19% corporation tax so saves a few quid.
Honest Money
Honest Money 2 yıl önce
Great point - yes the employer's NI is a tax deductible business expense so the gap would be a bit smaller than the final figures in the video 👍
Line of Sight
Line of Sight Yıl önce
Absolute quality, you have just made our decisions for us, great video for those of us new to running our own companies - huge thanks
Michael Green
Michael Green Yıl önce
Top class video & I like that you add back the corporation tax into the calculations as it before dividends. Comparing this to PAYE as well very informative. keep up the great content.
Kyle Ross
Kyle Ross Yıl önce
Love this video, awesome explanation. I'm reading Ramit Sethi's book at the moment which is great but its US focused and also doesn't cover anything from a limited company point of view. I am trying to get my head around these limits vs living expenses and investing. Ideally I'd stay under these limits you have mentioned but if I am paying say 1k in rent and 1k in living expences per month plus trying to put money into investments and pension, this all takes me way over the allowance. Is there a smart way that you allocate your funds whilst keeping under these limits? Thanks in advance!
Kyle Ross
Kyle Ross Yıl önce
To clarify I'm wondering how to pay these dividends, does it have to be taken out at the end of the year so your profit is all on file, or can you estimate / pay as you go per month. Or would you have to work backwards, and save your total dividends you payed yourself to make up your monthly salary the following year
Castle Rocks Cornwall
Castle Rocks Cornwall Yıl önce
I've just spent two agonizing days setting up a Ltd and sorting out VAT registration. Flying totally solo and trying to learn as much as possible. Thank goodness I found this video! AMAZING information, thank you so much for sharing this information.
leedstown
leedstown Yıl önce
Would you have been better as a sole trader
Alan Muscat
Alan Muscat Yıl önce
What you have not mentioned, Darren, is the impact of paying a lower wage has on the corporation tax bill, cancelling out savings made on NI bill.
Doodes
Doodes Yıl önce
Awesome video Darren, very well explained and to the point. Can you do a video explaining the differences when you have multiple streams of income and you run more than one limited company. As you mentioned on the Director’s Salary Slide at around 8:20 this example is with no other employment or income. Looking forward to seeing more great videos. Thanks
Doodes
Doodes Yıl önce
Patrick Holtz thanks for the clarification
Patrick Holtz
Patrick Holtz Yıl önce
If you keep it at £7874 in each company, then the company benefits from NI savings. However on a personal level, all income is grouped and tax is worked out on your total earnings.
honeysett2
honeysett2 Yıl önce
Absolutely brilliant video! Well explained, concise and to the point!
Alvaro Ruiz
Alvaro Ruiz Yıl önce
This is a great content. Could you expand on how to implement to this payment scheme a pension plan?
Snuggle Seal
Snuggle Seal Yıl önce
Could you do a video covering the different types of expenses we can claim against tax? Thanks x
iBaldie
iBaldie Yıl önce
Really helpful! Thank you! I would also like to know about filling my self assessment, I use exactly this method when paying my self and my wife, but should I be declaring only my dividend income on my self assessment because my PAYE income is already declared through PAYE?
James Neary
James Neary Yıl önce
If you are paying yourself via PAYE then I presume you are submitting RTI's to HMRC via your payroll system? If so, you have already reported your tax and I. By the way, this is the only way you can pay yourself PAYE. The dividend is submitted via self assessment
Paul Child
Paul Child Yıl önce
Both.
Sophie Akbar
Sophie Akbar 6 aylar önce
Just thinking of starting a business and this level of clarity is invaluable. Thanks so much.
John Moore
John Moore Yıl önce
Great video, this is why I recommend getting an accountant, so many people I know are paying way more than they need to. The number of people I know who pay themselves just through a salary and not through a limited company through dividends. You have got to remember, if like me you work a lot of hours owning your own business, often way more than anyone who works 9-5 does, you want to at least take home as much as possible for all the hard work you put in and longer days and nights.
neil blake
neil blake Yıl önce
Thank you Darren, I’ve just subscribed. Very helpful video. One question....although my wife and I are both directors of my limited company, I also own two buy to let’s and have a £2500 per year pension coming in. This all eats into my £12500 allowance so can I still pay myself the £8784 per year or would I be better off paying myself less please?
UnknxwnXDany
UnknxwnXDany Yıl önce
If you pay yourself the directors wage, you will be taxed on it all.
Valentin Klymenko
Valentin Klymenko 8 aylar önce
Thank you! Great explanation and examples. All well explained and structured
explosive plays
explosive plays Yıl önce
Great video, really helps break it down. I went through the example myself and am a bit confused on one thing, Shouldn’t the amount subject to dividend tax be £19568.96 (( profit after salary of 31216 - corp tax 5931.04) - 5716 remainder of personal allowance) as 8784 has been paid in salary not dividend? You have calculated dividend tax on difference between 14500 to 40k when it should be 14500 to 25284.96 as 14715.04 was paid in salary and corporation tax. I hope that makes sense, I would really appreciate a reply as I have been racking my brains over this for hours lol.
Declan Reynolds
Declan Reynolds Yıl önce
explosive plays A limited company is its own legal entity, and therefore it will pay its own tax (corporation tax) The corporation tax is charged on the companies profit. Dividend tax is based on what the owners withdraw from the company and what they include on their self assessment. So as a director you could pay yourself £9,500 salary through the company payroll and withdraw £3,000 dividends to take you to your £12,500 personal allowance and a further £2,000 dividends to take advantage of the dividend allowance. This brings the income to £14,500 without paying any personal tax. If you was to then issue the difference of £14,500 - £50,000 (higher rate) £35,500 would be taxable at 7.5% anything above is taxed at 32.5%
LML
LML Yıl önce
Eventually, someone can explain this very clearly and simply. For years I didn't know how it works and simply left it to my accountant and he, now I'm thinking, didn't do a great job. Many thanks.
Mohammed Hussain
Mohammed Hussain Yıl önce
Perfect video. Thank you. I just wanted to ask, is it possible to pay dividends to shareholders on a monthly basis? I understand dividends can only be given after Corp tax, so how will you go about paying dividends monthly? Thank you
Paul Child
Paul Child Yıl önce
Technically no, actually yes. Dividends aren’t paid monthly but directors can take ‘loans’ from the company throughout the year and then offset the ‘loan’ payments made using then actual year end dividend. Obviously important to remember that dividends are only payable in profits (and retained earnings) so remember to not over ‘loan’ as you’ll end up with an overdrawn directors loan account which HMRC don’t like !
Abdul Rehman Mayet
Abdul Rehman Mayet Yıl önce
This is great content. I've hit the like and subscribe. So well explained too. I've been taking salary above the NI threshold and my accountant didn't even tell me! Staying tuned for more great content 😀
Alan Robertson
Alan Robertson Yıl önce
I've been doing my own accountancy for a limited company for the last 7 years so I know what you are talking about. Amazing that you can cover everything in 12 mins. Very competent. Wish I'd heard this 7 years ago.
Unirock Productions
Unirock Productions Yıl önce
Very informative video. I`m the sole owner and the director of a limited company with only one other employee and our monthly PAYE bill is just too high. Now I think I know why and will speak to my accountant about this asap. It`s very difficult to survive for a company (especially if you`re VAT registered) in the current economic climate and any helpful advice to legally reduce those tax, VAT and PAYE bills is much appreciated
Declan Reynolds
Declan Reynolds Yıl önce
If your VAT registered you can currently defer your payments until March 2020. (You still owe it, you can just delay the payment if it helps) due to COVID. If you only have one other employee and your PAYE is too high then it is probably because of what you process yourself. Therefore I think the advice given in this video in regards to dividends will benefit your PAYE and personal income tax. If you process your own payroll make sure your claiming employment allowance which means you don’t pay any employers national insurance on the first £4,000 due.
Gavin. D.M
Gavin. D.M Yıl önce
Good video. A lot of my clients (I'm an accountant) are brilliant at running their business but their eyes start to glaze over when discussing this level of detail.
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