Bookreader started this topic @ 17:35 on 14/04/2007
This may sound like a really basic question, but I am totally new to all of this and would like to know whether (in a business startup as a limited company) it would be ok to pay no salary to ourselves (2 of us) for the first 6 months, while we build up some money in the business account.
In this case, how would we handle PAYE and NI payments?
We are surviving for now on a redundancy payment, which covers things for the moment.
PS, The last time I, myself was in paid employment was back in 1981, so I'm really rusty on all of these things.
Thanks to anyone who can help.
RE: Ltd companies and PAYE, NI
bwglaw | 14/04/2007 06:17 PM
You do not have to pay yourself a salary or dividends until the time is right for you and your business. If the business is your only 'employment' you could pay yourselves a salary within the personal allowance i.e. £5225, each, or pay yourselves this at a later date and back-date.
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RE: Ltd companies and PAYE, NI
Bookreader | 14/04/2007 09:35 PM
Thankyou for replying. Yes it is our only employment and we are working it all out as we go along.
What do we do about paying NI and PAYE while not paying ourselves? Do we have to pay anyway, or does this only get paid once we begin taking a salary?
Thanks for helping. This feels like starting out art the deep end of the pool.
RE: Ltd companies and PAYE, NI
bwglaw | 14/04/2007 11:51 PM
If there is just the two of you as Directors you do not need to pay NI. When you do get round to paying yourselves you should pay each of you £5225/year as a 'salary' with no NI/PAYE and the remaining amounts being paid as dividends and set aside 20% to save towards Corporation Tax, which the company will have to pay.
There is no liability for PAYE for Directors who hold shares because they are paid dividends which is liable to Corporation Tax starting from 20%. Remember the company pays the Corporation Tax.
Lets suppose you want an income of £30,000
£30000 - £5225 = £24775 CT at 20% = £4955. The £24775 is paid to you as a dividend and £5225 is paid as a salary. £4955 should go into a reserves account for when the Corporation Tax bill arrives. The amounts mentioned, can be paid however you like.
Do remember that you can only pay dividends from any profits. You should keep a close eye on this by producing management accounts. The dividends are paid accordingly to the amount of shares. If you have 50% shareholding then you can only be paid 50% of profits as a dividend
You may wish to consider having a Director Service Contract and Shareholders Agreement in place to avert any difficulties later especially when the company starts to make money. On this point, I am happy to advise direct by email
Jonathan
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BWG Commercial Lawyers
Insured Advice, Audits, Drafting & Litigation
advice@bwglaw.co.uk
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RE: RE: Ltd companies and PAYE, NI
Dickemall | 08/08/2007 01:28 AM
I found this advice very interesting, especially in the light of the Jones v Garnett (Arctic Systems) House of Lords judgement (25/7/07). The Sun CITY news headline should have been "Arctic freezes out the Taxman", instead of the rather tame "FANTAXTIC". The Joneses are husband & wife sole directors of their Limited Company (Arctic Systems). They paid each other £7,000 and £4,000 p.a respectively, out of approx. £100K annual turnover, and split the remainder between them in share dividends, thus saving about £9000 in PAYE tax & NICS, versus the lower share dividend tax rates.
BEST BIT, WAS HMRC WILL ALLEGEDLY INCUR LEGAL BILLS OF AROUND £1million, UNSUCCESSFULLY CHASING £42k IN PRIOR YEARS PAYE INCOME TAX .............. PRICELESS !!!
I am definitely going to pursue the same strategy with my Limited Co for 2007/8................ minimal or zero Director's PAYE & NICS, max DIVIDENDS! 
