Help with LTD/Director's salary pls

knowledgeispower

Hi there,
I have recently started off practicing from home and have a client who has a ltd company and contracting as a driver. at the moment he gets paid through an umbrella company. but he wants to cancel the contract with the umbrella company and wants to get paid minimum wage as the director. and obviously he wants me to sort this out for him. I understand that lots of people doing it this way and they get the rest of the money as dividends. but is it legal and how does it actually work? would I have to do his payroll or does the ltd co incorporation has to be changed at all? can the dividends be paid to the same account where the salary goes...what should I be careful about etc?
many thanks in advance

Viki

MarieNoelle

Hi Viki,
It's perfectly legal but salary and dividends are to be treated differently.

If the salary is under the LEL and he is the only employee there are no requirements for a PAYE scheme (under RTI). However it seems an ideal level of earnings would be up to the Annual allowance of £10,000 (if he has no other income), allowing him to pay minimal NIC counting towards his pension. You would at this stage need a PAYE scheme and file under RTI. Wages are deductible expenses from the company's corporation tax.

Dividends are only payable if the company makes a profit after tax. For further guidance read here: https://www.gov.uk/running-a-limited-company/taking-money-out-of-a-limited-company

They will have to be declared separately on his SA tax return, however I don't see any problems with paying both salary and dividends to the same bank account if they are clearly identified as such.

I hope this is helpful.
MN

burg

I would also add you fully need to understand the taxation of dividends and his short medium and longer term plans so as to be able to help planning with the withdrawal of dividends and the effect on personal tax. As a driver higher rate tax may not be applicable but for future reference this is a distinct advantage of a Ltd Co over being self-employed if income in the higher rate tax bands is not necessarily required by the individual concerned.

knowledgeispower

Thank you MN & Ian.
When the company is set up with Companys house would the share holder bit needs to be done differently if dividends will be paid?
Would you like to be my mentor please? I think I might have taken on more then I can chew in volume as it is not just the one driver, it's about 20 of them will be all starting off in the next few weeks.. I don't mind paying a percentage of the fees I will get paid. Sorry to be so blunt. Just pulling my hair out at the moment...
Thanks in advance

Viki

stevo5678

You don't need to do anything different with CH when the company is formed.

You simply pay a salary of no more than 10K and do a regular 'dividend voucher' for the rest. The voucher is just a bit of red tape and I have never had to show one!

Moneysoft is a good cheap software, HMRC tools is free but not user friendly.

You'll need to do Ltd Co accounts and a personal tax return for each company. I recommend taxcalc

Good luck!

stevo5678

There are other considerations like higher rate tax planning etc as per Burg but if you are not familiar with it then power phrasing is hard although with your clients it may not be relevant (should still be aware of it all though).