Hello NewcoSalary through payroll
If you pay yourself a salary, the company is an employer. Register for PAYE before your first payday, run payroll and report each payment to HMRC on or before the day you pay it. Many directors take a modest salary and the rest as dividends.
Dividends come from profits only
A company can only pay dividends out of profits available for distribution (profits after tax, including those kept from earlier years). Paying more than that is unlawful and may have to be paid back.
- Hold a directors' meeting and minute the decision, even if you're the only director.
- Issue a dividend voucher for each payment showing the date, company name, shareholder, number of shares and amount.
Director's loans
Money you take out that isn't salary, dividends or a repaid expense goes on your director's loan account. If you owe the company money at its year end and don't repay it within 9 months, the company pays extra tax on the balance. HMRC refunds that tax once the loan is repaid, but it ties up cash. Larger loans can also count as a taxable benefit for you.
Self Assessment
If you receive more than £10,000 in dividends in a tax year, you need to register for Self Assessment and file a personal tax return. You may need one for other reasons too, so check if you're unsure.
Quick answers
How do company directors usually pay themselves?
Most take a modest salary through payroll and the rest as dividends. A salary makes the company an employer, so it must register for PAYE before the first payday and report each payment to HMRC on or before the day it is paid.
Can my company pay dividends if it has not made a profit?
No. Dividends can only be paid out of profits available for distribution (profits after tax, including those kept from earlier years). Paying more is unlawful and may have to be paid back.
What paperwork do I need for a dividend?
Minute the decision at a directors' meeting, even if you are the only director, and issue a dividend voucher for each payment showing the date, company name, shareholder, number of shares and amount.
What happens if I owe my company money at its year end?
If the director's loan is not repaid within 9 months of the year end, the company pays extra tax on the balance. HMRC refunds it once the loan is repaid. Larger loans can also be a taxable benefit for you.
Do I need to do Self Assessment if I take dividends?
Yes, if you receive more than £10,000 in dividends in a tax year. You may need a return for other reasons too.
Video transcript
Read what's said in the part 2 video
Part two: how to pay yourself from your limited company, properly.
Option one: a salary, through payroll. You pay no income tax or National Insurance on your first £12,570. But the company pays 15% employer National Insurance on salary above £5,000 a year.
Option two: dividends. They can only come out of profits, after Corporation Tax. Hold a directors' meeting, write minutes and issue a dividend voucher. The first £500 is tax-free, then basic-rate taxpayers pay 10.75%.
Option three: borrow from the company. That's a director's loan. If you still owe it nine months after the end of the company's accounting period, the company pays extra tax of 33.75% on what's left.
Taking more than £10,000 in dividends in a tax year? You'll need to file a Self Assessment tax return.
The right mix depends on your profits and other income, so get an accountant to run your numbers. This is general information, not advice. Follow for part three: Corporation Tax, and what your company pays.