Hello everyone,
I'm hoping that somebody will be able to offer some advice and help set things straight for us.
We are a small company with 2 Directors and no other employees. We originally started whilst both Directors were employed full time elsewhere and all money taken from the company thus far has been in the form of dividends (or rather loans that have been then been cleared by our dividends).
The time has come for us to consider registering for PAYE and start taking a small salary to cover our NI contributions as we're no longer working elsewhere and this is our sole income source. We are getting a bit confused about where we stand and what we can and should be doing.
In summary we have taken about 9k each so far in dividends during this tax year. We believe from a quick discussion with an accountant that you are allowed to use your personal allowance of 11k as a dividend or salary and still be able to take a further 5k dividend allowance tax free.
As we've already taken approx. 9k as a dividend, we're assuming that we're able to take another 7k "tax free" to get up to our 11k + 5k allowance. Here's where we're getting confused - we think that taking the 7k as a salary between now and the end of the tax year is the most tax efficient way, as we wouldn't need to pay any tax on that amount (with it being within our 11k+5k)?
If the above stands true, then the next question/issue we're encountering is that if we were to take 7k between now and March at 1.75k a month, our payroll software is assuming that we're on £21k salary a year and thus wanting us to pay a sizeable chunk of tax.
Any input as to whether we're on the right tracks, completely wrong & how best to take this money would be much appreciated. We will enlist the services of an accountant if we need to but at least for this tax year we'd like to avoid the extra expense if possible to help get us off the ground.
Many thanks!
N
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