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PAYE/DRAWINGS or Dividend

I wanted a second opinion on a director who launched his buisness has a limited company in May 2012.

He wants to know if he should pay himsleg via the PAYE or Drawings or Dividend.

As he will be paying Coporation Tax on his Profits I would avoid paying 40% tax on your pay via PAYE.

Therefore would it be best for drawings or dividend payments and what advantages is one over the other.

Your answers please.

Thank you 

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Keep it simple

Take a salary to cover his personal allowance (or up £624 so as not to generate itty-bitty NI issues) and the rest in dividends, assuming the company has sufficient reserves for the purpose.  

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By ABPS
01st Aug 2012 10:15

PAYE/Dividends

Thanks for your answer to my comment.

Just one more question about taking a dividend is he is a new start up so no reserves has been generated so I assume if he wants to take money from the business then this will need to be through PAYE rather than a dividend and this would then cover any NI issues??

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By twj4789
31st Jul 2012 18:32

salary and dividends

As above take salary and dividends. I am not sure quite what you mean by suggesting he takes money as "drawings" unless there is a credit balance on the DLA which can be withdrawn at any time.

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By twj4789
01st Aug 2012 10:27

.

He should receive a salary taking up his tax free allowance.

If he is taking cash from the company, it must be coming from somewhere. If it isn't being funded by not paying creditors or other loans / overdrafts then it would be from the profits.

On a monthly / quarterly basis I would complete some basic management accounts which would verify any profit to pay a dividend. If there is not sufficient it could stay in as a director's loan or clear the balane through PAYE.

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By ABPS
01st Aug 2012 10:37

PAYE/Dividend

Duly noted!

Thanks again

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By Eric T
01st Aug 2012 11:53

A shareholder cannot really be paid a dividend without the company having sufficient reserves to support that dividend.

 

If excessive dividends are paid, HMRC will levy penalty Coprporation Tax on the excess amount paid.

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