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How do I pay myself?

You have successfully set up as self employed or as a limited company and you now want to pay yourself.  This guide provides an overview of how to pay yourself depending on your trading structure.

Self employed

As self employed you will take “drawings” from the company i.e. you will simply pay yourself monies from the business bank account.  These “drawings” can be taken at any point but it is important to note that these are not deductible in working out the profits for the business and you will have to pay tax on the profits through the self assessment system.

Self employed individuals will have to pay the following taxes:

  1. PAYE

    This is calculated based on the profits of the business plus any other income the individual may have.  As outlined above the sole trader will have to pay PAYE on any profits and it is important that monies are set aside to meet this liability.  Normally the sole trader will also have to pay “payments on account” on 31st January and 31st July for the following tax year.

  2. National Insurance Class 2

    Class 2 is £3 per week if your profits are more than £6,365 and is usually collected through the self assessment.

  3. National Insurance Class 4

    Class 4 is payable with your income tax (self assessment).  The 2019/2020 rates for class 4 are:

    Up to £8,632 – 0%

    £8,632 – £50,000 – 9%

    More than £50,000 – 2%

    As with the PAYE, it is important that the sole trader is setting aside monies to pay NI Class 4 on the respective due date – 31st January or 31st July.

Limited company

It is likely that you are a Director of your limited company and will be paid a salary as an employee. To be paid as an employee of a limited company the following steps are required:

  1. Register as an employer with HMRC
  2. The payroll provider (accountant) will register as a PAYE HMRC agent for your business
  3. Set up a payroll for the limited company (your accountant can provide this)
  4. Decide on the level of salary to be paid
  5. The Director can then be paid through:
    • Monthly salary (and make monthly Real Time Information submissions to HMRC)
    • Dividends

The monthly salary will be subject to PAYE & National Insurance Class 1. The dividends will be included in your self assessment return for the respective year and you may incur additional income tax on these.

We can help

Arcata can provide:

  • further information on the approaches above
  • a full outsourced payroll function for limited companies

Contact us for more details.