Wednesday, 18 January 2006

PAYE, dividends, and the taxman

Starting a company is good. Being paid by your own company so that you can pay your bills is better. In English law, with a limited company, there are two ways this can happen: as an employee of the company you can pay yourself wages or as a shareholder you can pay yourself dividends. Wages include national insurance and pension contributions so you definitely need some of that. Dividends are taxed less than high band wages so it’s good to have some of that as well. Hence the best solution is to have a combination of both. You could spend days calculating what is the ideal balance between wages and dividends to pay a minimum of taxes but as my accountant said: “Gordon (Brown) will get his money anyway”.

So I am now in the process of getting a PAYE (Pay As You Earn) scheme set up for the company and myself registered as an employee on that PAYE scheme. Hopefully I should be able to pay myself my first wages in February.

Post a Comment