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Where Taxpayers and Advisers Meet

Self employed and a director of a separate company. How to be paid - dividends or wages?

horseradish
Posts:1
Joined:Wed Aug 06, 2008 3:10 pm

Postby horseradish » Mon Apr 26, 2004 9:43 am

Hello

My business partners and I are debating whether we should pay ourselves regularly as salaries with national insurance contributions or as occasional dividends.

I'm ostensibly self-employed but also am one of three company directors in a small business. The small business is in a totally different field of work to my normal self-employed work.

At the moment the majority of my time is going into this business and it is where most of my income is coming from. Ideally I'd like to be paid a monthly salary because it's manageable and I'll always know that the money is coming in.

If I'm paid by the company as a salary, there will be PAYE and NI insurance deducted. But do I then have to pay tax again when I acknowledge these payments on my accounts as a self-employed person?

What about if I was paid on a dividend? From what I read there is less of a tax burden on dividends - but again, would I be taxed again when the dividend is reported on my personal accounts?

Does the Inland Revenue take a view as to whether self employed people can be directors of totally different companies? And does it make any difference from their point of view whether someone is paid once a month (a "salary") or once every few months (a "dividend")?

Thanks for your time.

accountant@uktaxshop
Posts:550
Joined:Wed Aug 06, 2008 3:04 pm

Postby accountant@uktaxshop » Mon Apr 26, 2004 12:44 pm

There is no issue with you being self employed and a director of a limited company.

In general taking salaries will prove costly in terms of employers NI, so a dividend route is the "normal" arrangement.

For a salary Income tax, employers NI and employees NI will be deducted within the company, there is no "double taxation" taxing you again as a self employed person.

For dividends there is an additional charge for higher rate tax payers in your own hands, but this only increased company taxation from 19% to just under 40%, far lower than the salary route.

Dividends need to be properly declared out of distributable reserves, and a regular monthly amount, although technically legal would be viewed with some suspicion on investigation. A less regular payment is normally recommended.

I would suggest you sit down with your company accountant and do the math looking at both options. You will quickly see why a dividend would normally be used as the salary option is expensive. If you havenÂ’t yet appointed an accountant, then I would be pleased to be considered. Please give me a ring to discuss the services I provide to make running your new company straight forward and tax efficient.

Regards,

James Smith
Chartered Accountant
www.jamesesmith.co.uk
01284 764436

emilyhmere
Posts:19
Joined:Wed Aug 06, 2008 3:14 pm

Postby emilyhmere » Thu Nov 11, 2004 5:09 am

I am a director of a company. Is it possible to be a director of the company and also to be self-employed and invoice that Company for work carried out? I am not on the payroll of the company.

Thanks


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