Many people who trade through a limited company pay themselves a basic salary as a director and take out the rest of their income as dividends.

Salary

The salary typically takes you up to the lower earnings limit for National Insurance purposes. This means that you maintain your National Insurance Contribution record for state pension purposes without actually having to pay any National Insurance!

For the year-ended 5 April 2013, the optimal salary for owner-directors to pay themselves from their limited company is £624 per month.

The only downside is that you have to register as an employer with HM Revenue & Customs and submit an annual payroll return to them. We can help you with that!

Dividends

The balance of the owner-director’s income is taken from the company in the form of dividends.

These are paid out of post-tax profits, so be sure your company has profits it can distribute.

While you are within your basic rate tax band, no additional Income Tax is payable on dividends.

From 6 April 2012, the higher rate threshold is £34,370.

Assuming that you no other income* besides your salary of £624 per month, your company can pay you a cash dividend of £31,488 before you would have any Income Tax liability.

This may vary depending on your individual circumstances. Please check with us to see what’s best for you. This information is intended for guidance only.

* Other income includes bank interest, dividends, rent, etc