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I started a Limited company a few months ago, previously I

Resolved Question:

Hi There,
I started a Limited company a few months ago, previously I was employed. I'm just trying to figure out how much I can pay myself. I'm a contractor earning about £350 a day. I've registered the company as flat rate (paying 13.5% VAT). I'd like to know how much PAYE I can pay myself and how much dividends I can pay myself.
Is the PAYE lower limit of £11,000 based on the whole of the tax year or what is left?
i.e. assuming I had earned no money since April, and there is now only 6 months left until the end of the tax year, can I pay myself £1833 a month?
In my exact case I've earned £10,000 in my previous employ, does that mean I only have £1,000 left that I can pay myself PAYE (over 6 months, £166 a month)?
Secondly, does this apply to Dividends too? Can I pay myself £5,000 dividend tax free, then £27,000 at 7.5%.
Finally, If I am playing myself £166 salary a month do I have to report it to HMRC as it is below LEL.
Some clarification would be appreciated.
Regards
Ian
Submitted: 7 months ago.
Category: Tax
Expert:  bigduckontax replied 7 months ago.

Hello Ian, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

You can pay yourself whatever you like through PAYE channels. Remember as a director you are an employee per se and must be remunerated through PAYE. Dividends can only be distributed if free funds are available. The first 5K of dividends are tax free in the hands of the recipient.

The personal allowance is 11K and is for the whole of the tax year. It has nothing to do with PAYE.

You can pay yourself what you like, but at the levels you suggest you will be in the 20% tax bracket. You should process your P45 through the PAYE system and it will all come out in the wash so to speak. If, as you say, you have already earned 10K the indeed you only have 1K of income free of tax.

Your surmise on dividend treatment is correct, but make sure that they do not push you into the 40% tax bracket.

I do hope that you have found my reply of assistance.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3598
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 7 months ago.

Thank you for your support.

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