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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15976
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a client who has set up a Limited company, she is the

Customer Question

I have a client who has set up a Limited company, she is the only Director. There are no employees.

What is the most tax effective way for her to pay herself?

I was going to suggest that:
(a) Pay a salary, just exceeding the NI limit of £149
(b) Then take any profits as dividend.

Is this correct?

As this is such a small business it does not have an automated payroll system. Can client calc NI etc manually and submit manually to HMRC? Would this comply with RTI requirements?

Submitted: 4 years ago.
Category: Tax
Expert:  TonyTax replied 4 years ago.

In order to accrue some state pension rights, you need to earn a minimum of £109 per week even though you won't pay any national insurance contributions at that level. Take a look at page 18 of the document here.

Many owners of small businesses pay themselves a small salary and take any other income they need in the form of dividends which are not subject to national insurance contributions. Given the high level of the Class 1 NIC rates for employee and employer it is a sensible strategy.

Most employers cannot submit PAYE information via the post any longer. It has to be done online. Take a look here for more information and how to get started. There are many commercial software products available and the whole process is very simple. The software I use costs around £100 per annum. There is a list of third party providers via the link I gave you.

I hope this helps but let me know if you have any further questions.