Been a while since I’ve been on here but have always found it a valuable source of info. You are my peers, after all 🙂

Myself and a business partner are directors of (effectively) a small consultancy. There is just the two of us, and it’s all very fifty-fifty, and we are both very new to this business malarkey.

Anyone else in a similar position that can offer advice on salary/wages/dividends?

Pay your VAT on time would be my best advice. I didn’t and now go to do IVA. I paid min wage and extra as dividends.

v similar here.

Colleague and I operate under one company, in which I have a minority ownership. However I dont get paid as an employee or owner of that company, I invoice it from my own personal services company for a fee based on a proportion of a project fee. My colleague does similar but as a sole trader IIRC.

Our joint company retains 30% of all fee income for overhead or investment, the balance is then split between the team based on roles and input.

As for my personal services company, I receive salary, pension contributions and dividends in whatever ratio is optimised for minimising my personal tax liability. My company pays corporation tax on the net fee income. I also leave funds in my personal services company to place in long term investments. While Im a higher rate tax payer, to the extent I dont need to take all my income out of my company (and so pay tax on it) it makes sense to leave it in there either for retirement planning or lean years when my personal tax rate might be lower.

Mrs Stoner is an accountant, and a brutally straight-laced one at that. So we dont work the tax deductability very hard and our VAT is always on the button. Avoid paying as many bills as you like, but never the VAT bill.

Decide if you split it 50/50 or on work done.

Similar situation, get a good accountant who’ll give you all the answers.

I pay myself £157 salary a week, which is the sweet spot of efficiency for tax and NI contributions, then pay dividends and incur the tax on that.

Anyone else in a similar position that can offer advice on salary/wages/dividends?

I’m in a similar position and would suggest this:

1. Treat the company as a vehicle that you are renting and driving. Its not actually yours, but you are in control of it.

2. Talk to an accountant who will advise exactly what salaries to draw, based on your tax code.

3. If you have generated enough profit to pay dividends, then take as much as you want and feel comfortable with. Clearly you want to leave a decent amount in the account to cover eventualities, so its really just a common sense thing.

4. Plan ahead for Corporation tax and vat and other fees.

Depends on how much you need salary wise to survive, but I do as above also – small salary but keeping my National Insurance active and dividends later if needed.

I handle all my payroll and it’s very easy once up and running – was a bit confusing at first as it was all new to me as well. Lots of info/help on the HMRC website and they give you free software to submit payments (Basic PAYE tools).

I’m in exactly the same position, not sure I can offer much advice as we’ve just started ourselves. You’ll pay corporation tax on profit before you take it out as dividends, so might be better paying yourself salary up to some limit (take advantage of income tax thresholds, but also check for NI contributions). Depends on what other income you have if any.

One question I do have for the massive: what are the limits (if any) on retaining money in the company and using it for future business expenses. The way things are likely to pan out is occasional large(ish) contracts with periods of drought. Um, this is not so much about “retaining money” but rather, avoiding declaring it as profit (and paying tax) only to have to reclaim tax on a loss next year…

if it is fee income within the tax year you should pay corporation tax on it in that year. Losses can be carried forward you dont reclaim tax paid.

On the other hand I think we only pay tax on investment gains when realised (i.e. assets sold), but Id need to check with the CFO

You can put a bike through your business without having a specific scheme setup to do it and claim it.

If you’re doing salary sacrifice and/or loans it gets a bit complicated.

Small limited company owner, single man business, primarily labour only project work.
I use Freeagent for my accounting, it does payroll, expenses, invoicing, banking conciliation, dividends etc. Saved me a lot of accountancy fees this year, as my accountant can log in and use the information for submission.
I have a discount code if anyone wants to try it.

@rone, does it have to be a new bike?

Myself and a business partner are directors of (effectively) a small consultancy.

Same here pretty much. Small salary to cover NI etc as above (£157 or whatever it is now). Then dividends for the draw down of profit, as described in the minutes of the ‘directors’ meetings’ – basically agree between you that you are making a dividend.

Confusingly, the dividend and the cash are not quite the same thing – ones a decision, the other a transaction. (get a local recommendation for an accountant, e.g. mine if you are in central Scotland).

Tell Companies House what you agree the split to be – there’s a world of difference between 50/50 and 49/51 even if it seems small now. Essentially arrange this by issuing 100 shares at £1 each (and do actually pay this to the company and keep a record that you did).

are you VAT registered yet? Keep receipts for your laptops as there are rules about claiming back VAT on capital pre-registration (think its six months, but that might have changed).

HMRC are actually pretty good to deal with, so long as you have thought about the question you ask them.

I’m sure there’s more – what are you stuck on?

Get an accountant, ideally one recommended. Yes the basic premise is pay yourselves enough salary to keep your ni going, and take the rest as dividends but it’s often not as simple as that. More changes afoot next year too. Each business/director has different circumstances, and remember if it comes out, you get a tax bill, you can’t put it back if you need it. I’d be taking as little as possible in a startup to leave cash in the business, but a consultancy firm may not need that.

Remember your dividends attract corporation tax before you get to pay personal tax, so it’s not the golden goose it used to be. On basic rate tax 10k of divs will net you £9625 after tax, you’d need £12500 in profit to achieve that dividend. The same £12500 taken as salary would get you £10000. When it’s an equal split or a single owner, dividends don’t always give you much benefit now.

rone, does it have to be a new bike?

I’ve not seen anything the notes that says so.

One question I do have for the massive: what are the limits (if any) on retaining money in the company and using it for future business expenses. The way things are likely to pan out is occasional large(ish) contracts with periods of drought. Um, this is not so much about “retaining money” but rather, avoiding declaring it as profit (and paying tax) only to have to reclaim tax on a loss next year.

I’m pretty sure you will have to pay tax on the profit and deal with the loss as it comes, as you don’t actually know before hand what profit or loss you’re going to make.

One year we made a loss and it either sits in your HMRC account as a negative balance or you can claim it back.

Beyond that it’s accountant advice.

With any small business, having been involved with them for more years than I care to recall, two things are of vital importance:

1) A shareholder or partnership agreement – right at the outset. It’s a pain, but will save untold angst further down the line.
2) Good accounting – it’s dead easy now (and cheap) with the likes of Kashflow or Xero

Find a good small business accountant to advise on the best treatment of personal and business tax.

Remember your dividends attract corporation tax before you get to pay personal tax, so it’s not the golden goose it used to be. On basic rate tax 10k of divs will net you £9625 after tax, you’d need £12500 in profit to achieve that dividend. The same £12500 taken as salary would get you £10000. When it’s an equal split or a single owner, dividends don’t always give you much benefit now.

The other benefit of taking money out as dividends rather than salary means you don’t have to pay employee and employer National Insurance.

There is a decent government contribution towards employer NI currently.

Covers both our directors.

You can set it up in Basic PAYE tools from HMRC. First 3K.

There is a decent government contribution towards employer NI currently.

Covers both our directors.

You can set it up in Basic PAYE tools from HMRC. First 3K.

Ah yes, good point, known as employment allowance. Sadly I can’t claim as a one-man band.

I’d totally forgot about NI. I’ve been paye since they changed dividend tax a couple of years ago so had a brain fart… ignore my post then. Shows why an accountant is needed!