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.
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:
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.
Class 2 is £3 per week if your profits are more than £6,365 and is usually collected through the self assessment.
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.
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:
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.
Arcata can provide:
Contact us for more details.