How to pay yourself tax efficiently from your Ltd Company 2020-21 - Salary & Dividends

[@tonydCFO]

Thank you for watching our latest video. My mission is to 'help you know your numbers' and 'enhance your financial literacy' as so you can make informed decisions about your business, company and personal finances. As a chartered accountant for over 20 years, I strongly believe (and have experienced whilst serving many businesses, ventures and personal individuals) that if you take interest and care of your numbers, your numbers will take care of you and your family. Please leave a comment below if you have any questions and in particular, if there any company or personal finance related topics you would like me to cover in the future.

[@davidlean2879]

I am in receipt of SRP and PIP, how would all this applty to me? My main business it Crypto mining. Thank you

[@osmanali488]

This is the best channel I've seen. Great job, can see this channel growing fast!

[@tonydCFO]

Thank you Osman.

[@ajaygill2009]

Very good videos. I will definitely watch all of them to be honest. Made things sound very clear and straight forward to someone who doesn't know anything about working out tax rates, expenses, good ways to save money via legal loopholes. Very well presented. 👊🏽

[@tonydCFO]

Hi Ajay, thank you for your positive comments. We are glad our videos are helpful and empowering.

[@Jeffybonbon]

The other tax is dividend tax on 35k around 6k so the real tax rate for using a company is around 26% plus running of pay roll charges

[@johnnyneill1231]

Best accounting video I've seen so far!

[@tonydCFO]

Hi Johnny - thank you very much

[@andrewallsop]

Hello Aidhan, just want to say that not only are your videos extremely useful but - as a marketer - your marketing is amazing.

[@tonydCFO]

I really appreciate your positive comment. I hope the videos are useful and serve a purpose for you too.

[@Miguel131291]

Really amazing content, finishing AAT L4 and these videos have helped me as I am starting to get some of my own clients and I am personally not that much involved in LTDs yet. Keep up 👏🏻👏🏻

[@tonydCFO]

HI Miguel, thank you for your comment and we're delighted our content is helping you.

[@Femtophysiker]

excellllllent video and bit by bit I am learning DIY-accountancy and taxation. Thanks to youtube and you espeically for uploading and hosting the knowledge.

[@tonydCFO]

Hi Femtophysiker, you're welcome and thank you for your positive comment and support.

[@CyprusXCM]

Great video. I am surprised you don't have a larger following. Keep them coming and I am sure you will grow. Keep up the good work.

[@tonydCFO]

Hi CyprusXCM, thank you for your positive encouragement and support.

[@hydaromar6532]

Why am I earning 35k and paying a whooping 20% and NI. Broken system.

[@Xbot4Life]

00:52 sounded like you almost said tax evasion lol

[@tonydCFO]

👍

[@benny532017]

Thanks for the video. I know what you're saying about the omission of corporation tax, but I think it would be better to take this into account, an overall "money in-money out" view would make the most sense in terms of making the decision to split the income/dividends into a certain ratio wouldn't you say?

[@tonydCFO]

Hi Benny, thank you for your comment. Corporation tax should be taken into consideration but it is paid by your company and not you personally. The key here is ensuring you split your post corporation tax profits in a tax efficient personal remuneration.

[@RZH971]

I would say that if a director is looking this closely at the tax on the directors salary and dividends then they would also be small enough to look at the overall cash flow as mentioned by Benny.

[@francissaunders4050]

A truly excellent and informative video! Many thanks Aidan

[@tonydCFO]

You're welcome Francis 😊

[@AbrasionUK]

Great video. You explain things succinctly and with a lot of clarity. Unfortunately leaving out the corporation tax is kind of a problem though as the whole point of the video is to compare two different tax strategies and work out which one is optimal. While I appreciate that introducing corporation tax and then trying to figure out what effect allowable expenditure has on that final figure is going to add a whole new layer of complexity, it's really only the final figure that most business owners are going to be interested in. Generally I've found that particularly for figures around $50k as discussed in the video, remaining unincorporated and forming a partnership with your spouse provides the greatest tax savings because of course you completely do away with corporation tax and are able to fully utilize both partners personal allowance and basic rate bands.

[@BrainInteractive]

The calculation at 14:05 didn't account for corporation tax, but I tried to work out the effective tax rate based on what I would bill to client, accounting for corporation tax. Does this look correct? it could be an interesting topic for a future video Total dividends is 35,500 + 4,984 = 40,484 This is post tax, so you will need to have billed your client this + corporation tax. As of 10th Oct 2020 UK corporation tax rate is 19% - source is govt website Work out earnings needed to pay for dividends 40,484 / 0.81 = 49,980.25 Total corporation tax = 49,980.25 - 40,484 = 9,496.25 Director salary in this scenario is 9,516 Total billed to client for this to work is 49,980.25 + 9516 = 59,496.25 Total Tax in this scenario is 9,496.25 + 2,764 = 12,260.25 Total walk away pay in this scenario would have been 50,000 - 2,764 = 47,236 Effective tax rate is 1 - (walk away cash / amount billed to client) Walk away cash / Billed to client is 47,236 / 59,496.25 = 0.7939323906968927 1 - 0.7939323906968927 = 0.2060676093031073 Effective tax rate is 20.6%

[@tonydCFO]

Hi Brain Interactive. Whilst we cannot opine on your calculations, the overall blended effective tax rate (when you include corporation tax) of 20.6% is in range, albeit on the lower end. The effective rate will depend upon variables such as revenue levels and salary/dividends extracted.

[@RZH971]

Hi and thank you.. the Employer’s NIC on Director’s Salary can not form part of the Employer’s NIC allowance. But you stated that if your company is an SME then you can claim this back. My understanding was that neither a Director salary or NHS GP staff salary can claim the Employer’s NI allowance.

[@akumar131]

Great very useful

[@tonydCFO]

Hi Anil thank you for your positive comment and support 😊

[@davidcoates3442]

This is incredibly useful info - many thanks.

[@tonydCFO]

Hi David, you're welcome and thank you for your support 👍

[@bhargavimysore9055]

Thanks for the video, very informative! What happens when you exceed £12.5k salary threshold i.e you work as a contractor for 11 months of the tax year and then start a permanent role in March 2021? Should you repay some of your director's salary back to your Ltd company to stay within the £12.5k bracket? Thank you!

[@AR-ic6jf]

Great video thanks for sharing this content 👏

[@tonydCFO]

You're welcome Ar R.

[@VibrantDesigns]

This was very useful, thanks!

[@tonydCFO]

You're welcome Vibrant Designs and thank you for your comment.

[@VibrantDesigns]

@@tonydCFO I forgot to ask, but can this apply for mutliple owners of the limited company?

[@hugoharvey2192]

Great video! Does capital gains from stocks fall under 'other sources of income' ?

[@gladmaxgroup5038]

GOOD ANALYSIS.

[@tonydCFO]

Thank you Gladmax Group.

[@alexysharp5391]

Good job! Thank you.

[@tonydCFO]

Thank you Alexy Sharp.

[@winstonk400]

Awesome content. Subbed!

[@tonydCFO]

Hi Send The Fire thank you for your positive comment and support 😊 I'm really grateful that my content is useful and adds value to you.

[@akhtaremco]

What about pension to directors? Are they pre tax and what is their tax implication?

[@tonydCFO]

Hi Akhter - for an approved pension scheme, yes pension contributions via a Ltd Co to a director are pre-tax and can grow in the pension scheme tax free - there are also generous tax benefits upon drawing a pension ... this video explains >>> kzbin.info/www/bejne/hGrGeWaugtFkesU

[@yazy9114]

Nice video!! thank you

[@tonydCFO]

You're welcome Yazy 😊

[@wolfshieldson]

Wow, why hasn't my accountant suggested this?

[@tonydCFO]

We always recommend you have a chat with your accountant on this. Alternatively, please don't hesitate to book a call with one of our qualified accountants who can assist you with your specific situation. calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@justinfletcher1882]

Hi there, thank you so much for your content very clear and useful. Please would you be able to provide an overview of SSAS and how it can be used to reduce corporation tax?

[@tonydCFO]

Hi Justin, thank you for your suggestion and this is duly noted and placed on our video roadmap.

[@justinfletcher1882]

@@tonydCFO also maybe addressing tax implications of companies paying back directors loans and how the interest is treated.

[@wncjetservices3909]

Loving your videos mate I've watched the limited company ones 3 times each now. A quick question on this one. Would I pay corporation tax 19% (roughly) on the £50,000 or whats left in the company's account after I've taken out my £50,000

[@tonydCFO]

Hi Will, corp tax is payable on Ltd Co profits, so before you can even take the £50,000. If you need further assistance, please don't hesitate to book a (no charge) call with one of our qualified accountants who would be happy to elaborate. Follow the link to book - calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@williambongo]

Hi Will, The company would pay CT on it's profit before dividend. To get the overall picture you need to do two calculations side but side. Firstly for the company and secondly you as an employee. Then sum the total tax (CT AND ICT) and NIS of the two. Also, this is a really good clear video.

[@khanstudioz9543]

you are leaving our the corp tax that needs to be paid on profit before it becomes a dividend

[@MM-is5nk]

And £3,000 annual accountants fee if you are Ltd.

[@swiftgames5382]

Yes you pay 7.5% BUT don’t you then a few months later corporation tax? Which will be a few £k ? So if I needed to pay myself every out of the pot I wouldn’t be hardly any better off than I would be as a sole trader .

[@Omarj1986]

Loving your videos. I'm learning a lot. Question 1. I'm new to all this. But why does an employer pay NI? And where does it go anyways? under expenses? Question 2. You mentioned there is a corporation tax benefit. Although I understand the saving, isn't it still better to stay below personal allowance and just pay yourself dividends. If I'm not mistaken you will end up paying 20% personal tax anyway. So a salary upto Personal allowance and the rest in dividends will be most efficient. I'm I incorrect in saying that? Kindly clarify this. Thank you.

[@tonydCFO]

Hi Omarj. Q1 - Employers NI is a before corp tax expense on the Income Statement. Q2 - There is no one size fits all solution for this. It all depends on your personal curcumstances. Our (qualified) accountants are happy to assist you in working through this question specific to your circumstances - you can book a call with them by following the link below should you wish: calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@PaweSzpak]

Hi, thanks for explaining this topic clearly. I wonder if I have very simple transactions on my ltd company, is that alright if I do my accounting myself? Would you walk through the process of doing accountancy for your own company in another video please?

[@tonydCFO]

Hi Pawel, if your Ltd Co has simple transactions, then yes there should be nothing stopping you from doing your own bookkeeping. Head over to our membership area, we will be preparing an in depth video tutorial on this very subject. accountingtaxacademy.com/

[@elfactos]

Hello Aidhan. Very useful info. Thanks a lot. I wanted to ask you if I am obliged to pay myself everymonth as a director to include it as in the expenses or I can do it at the end of the year just before starting to calculate the taxes? Another question please when are we supposed to pay the taxes exactly? Is it one year after the formation date? Btw I am a dropshipper

[@tonydCFO]

Hi Yaseen, thank you for your question. Given the complex nature of accounting and tax, it's difficult to provide a response in a You Tube comment that you could comprehend. You can book a (no charge) up to 15min call with one of our qualified accountants who will be happy to assist. Follow the link to book: calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@Ed-em6mf]

Does the strategy 2 multiply with each LLC that am director in? Meaning if I have 2 LLCs,for example, and total earnings would be 50k from each LLC, 100k for both, will I get taxed as separate 50k earnings or HMRC will see it like aggregate earnings of 100k and hence smack me and take 40% (not sure exact %)?

[@belfastroamer]

Hi mate. Awesome video. Love your work. Just 1 question. I'm currently an IT contractor with a limited company. Say if I do pay myself 50k, what happens to the rest of the money in the company and how can this be taken out tax efficiently?

[@tonydCFO]

Thank you Paul, your comments are appreciated. One option is if you are nearing the end of your contractor Ltd Co journey and may be forced to close your company due to IR35 (by Apr 2021) then there is a very tax efficient option to extract all your remaining funds at 10% or less. If this is not the case, there are other (legally legitimate) tactics that you can implement. Please don't hesitate to book a call with one of our qualified accountants who can explain further and evaluate your specific circumstances. calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@jawadarif5676]

But with that extra 2k in dividend on sat2 you would have paid cooperation tax

[@sandrahampton4094]

Why would you stay as a partnership with higher tax and liability rather than become a ltd with lower tax?

[@tonydCFO]

Hi Sandra, good question. In business, tax should not be your only consideration. We've done this video kzbin.info/www/bejne/Zpu1k4Ovi52pbNU that looks at a sole trader v Ltd Co from a holistic point of view. You can easily substitute the sole trader part of the video for partnerships, the principles are similar. We hope it helps.

[@doctorbocus]

Don’t you still have to pay 19% corporation tax though? So it works out to 26.6% tax on money you run through the company?

[@tonydCFO]

Hi Doctor Bocus. Corporation tax is payable on the company pre tax profits. You are right, this tax has to be paid. The video's focus is on what happens once you pay yourself a salary and dividend personally from your company.

[@szczygiel8010]

in example 2, not paying class one NIC. Is NIC credited in this case? Just wonder if there is any impact to statutory pension or benefits eligibility like job seeker allowance when using NIC threshold?

[@AM09286]

Thanks for the great video. in order to pay yourself £35k in dividends what would the ideal amount of profit be for a small business.I’m trying to bring my profits down with pensions and expenses but don’t want it to be too low so I can’t take out the £35k in dividends.hope this question is not too confusing

[@tonydCFO]

Hi A M, thank you for your question, unfortunately it's difficult to provide a meaningful answer in a KZbin comment box as there are numerous aspects to consider. You can book a 20min discovery call with one of our qualified accountants, who could help you >>> aidhanfinancial.com/book-a-discovery-call

[@srikish1710]

Hi Aidhan, very nice video. Quick question, in order to invest/move funds from a consulting ltd company into a property ltd company (to buy properties); which option is best suitable, is it director's loan (or) inter company loan (or) pay dividends to property company from consulting company?

[@tonydCFO]

Hi Kishore, all 3 avenues are feasible and each has its own pros and cons. It really depends on your objectives (ie tax efficiency, safeguarding the loan). I suggest to arrange a 15 min call with one of our qualified accountants who can help you with your question as we will need some more information from you in order to provide a balanced response that aligns with your objectives. You can book a call here: calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@srikish1710]

@@tonydCFO Thank you for your reply. Will do so.

[@sushilmalik5252]

how about one have more than one limited company? will it be calculated separately for each company?

[@tonydCFO]

Hi Sushil, salary and dividend tax allowances are based on the director/employee, not on the Ltd Co.

[@thefomemister]

So for the example given and taking into account the Corporation Tax you will need to pay on the extra 2984£ Dividends you take out via the second option, the most efficient is still the second option is this correct?

[@gonzalo4526]

If you pay yourself a lower director salary, although you will pay less taxes, your company will pay a bit more (corporation tax) as your expenses are lower. Right?

[@tonydCFO]

Hi Gonzalo, in principle you are correct. However, an optimal salary + dividends remuneration is about making the 'maths' work for your particular circumstances. Please don't hesitate to reach out to one of our qualified accountants should you wish to explore what maths works for you... calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@aleksandraarmoniene1169]

Thank you

[@tonydCFO]

You're welcome aleksandra.

[@hassanrezai8155]

Tax efficiency wise which one better off, have two Ltd companies or one Ltd company with two SIC code.

[@tonydCFO]

Hi Hassan, thank you for your question. There is no binary answer to this question, as it depends on various factors, including your objectives. If you want to discuss further, why not book a discovery call with a qualified accountant aidhanfinancial.com/book-a-discovery-call/

[@carbados5260]

Can I claim back the expense for buying a car to use for my ltd business?

[@tonydCFO]

Hi Car Bados. It must satisfy the 'wholly and exclusively' rule which in the case of cars is difficult and rare. An alternative is to lease a car through your Ltd co business (beware BIK) or use your personal vehicle and claim a mileage allowance for any business use. If you want to discuss in more detail, please don' hesitate to book a call with one of our qualified accountants who would be delighted to help. calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@freebee354]

Does dividend calculated for working tax credit

[@paulog9109]

Hi Aidhan, very informative video. I have a question for you if you would be so kind. I receive trust fund income together with a tax credit note. How is this treated in my self assessment. I'm also a company director and have been taking the lower salary of £8700.

[@tonydCFO]

Hi Paulo G, thank you for your question, unfortunately it's difficult to provide a meaningful answer in a KZbin comment box as there are numerous aspects to consider. You can book a 20min discovery call with one of our qualified accountants, who could help you >>> aidhanfinancial.com/book-a-discovery-call

[@sfranklin2737]

Wonderful

[@tonydCFO]

Thank you

[@jihadsaleh9004]

Hello Tony I would like a private consultation with you please

[@tonydCFO]

Hi jihad saleh, you can book a 20min discovery call with one of our qualified accountants >>> aidhanfinancial.com/book-a-discovery-call

[@IsobarBrokenFlame]

Move to Dubai and pay no tax on any of your income.

[@tonydCFO]

Appreciate your comment Inspirationfree - however you've also got to consider residency rules

[@IsobarBrokenFlame]

@@tonydCFO 😊. This is true, but the trend for the under 30, is to move country right now. They are running from the ever increasing taxes.

[@tonydCFO]

@@IsobarBrokenFlame Yes I tend to agree with you - if you're young, (often single) it's easier to uproot and move countries and with it your residency status changes

[@craigstuart9389]

Hi i have a question. If i live abroad and my wife is living abroad and not a UK national does she still get a personal allowance?

[@tonydCFO]

Hi Craig, thank you for your question. You can go along to our Q&A section where you can post your question and get a response from a qualified accountant or chartered tax advisor >>> accountingtaxacademy.com/qa-section/

[@thefakehenrywatson]

hi, is it possible for a uk ltd to buy and hold crypto assets on balance sheet? is it just cgt liability on disposal? any relief on purchase? how is yield from crypto assets treated ? cheers for the vids!!!

[@tonydCFO]

Hi OGsourcrypto, thank you for your questions. We'd be happy to help you with these through a discovery call which you can book as follows >>> aidhanfinancial.com/book-a-discovery-call

[@jamesparkin6445]

Are you okay to pay yourself a regular amount each month and then declare a certain percentage as salary and dividend?

[@tonydCFO]

Hi James, by regular amount we assume you mean a regular salary. Then you can declare a certain % of your profits as dividends.

[@jamesparkin6445]

@@tonydCFOlet’s say my company is bringing in 4000 pounds a month.. could I then pay myself 3000 pounds a month but only declare 800 pounds as PAYE and the rest as dividend

[@azhalhalil9429]

Would an accountant be able to give someone say 150k+ a year with minimal tax ? Or would that be too much to take out of a company ?

[@tonydCFO]

Hi Azhal, the ability to take £150k + from your business is down to the business. It will need sufficient profits and/or retained earnings and cash flow to do this. An accountants role is to help you do this as tax optimally as possible, and yes even at a £150k + this can be done. There are several ways to skin a cat. If you want to explore how this could work for you and your business, please don't hesitate to reach out to one of our qualified accountants... calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@matthewbell4273]

Hi - thanks for the video. I have 2 questions please: 1. Do state benefits not already accrue at the Lower Earnings Limit, with no need to go to the Primary Threshold, meaning that paying salary only to the Secondary Threshold would be the most efficient (thereby maximising CT deduction but without the e-er or the e-ee having to pay any NI at all, and yet with state benefits still intact due to the LEL having been met?). 2. According to gov.uk, the annualised Primary Threshold is £9,500 exactly, not £9,516? Admittedly, £183 pw x 52 = £9,516, but the government (perhaps inaccurately?) cites the annualised figure as £9,500 at this link: www.gov.uk/guidance/rates-and-thresholds-for-employers-2020-to-2021#class-1-national-insurance-thresholds

[@tonydCFO]

Hi Matthew. Q1 - Yes, state pension credits do accrue at the LEL, currently in 20-21 is £120 p/w. The optimal salary assuming no employment allowance is up to the secondary threshold in 20-21, given the additional CT relief. Q2 - Yes, this is quite bizzare. Mathematically it is £9,516 per annum but HMRC seem to be using £9,500 per annum! It's an insignificant difference and I suspect done to make it easier for their systems. If you want to discuss further please don't hesitate to book a call with one of our qualified accountants - calendly.com/aidhan/i-have-a-query-and-need-to-talk-with-an-accountant

[@matthewbell4273]

Hi Aidhan, many thanks for your reply; much appreciated. Q1 - Thanks, I agree. However from 6:46 to 7:16 you advocate paying as a minimum to the Primary Threshold due to interconnection with state benefits, writing that “Certain State Benefits are National Insurance Contribution based - so paying at or above the Primary NI threshold is advisable”. But if state benefits already accrue at the LEL, then why pay as a minimum to the Primary Threshold? Q2 - Thanks, that’s interesting; very bizarre indeed. Best, Matthew

[@tonydCFO]

@@matthewbell4273 Q1 - There is a difference between national insurance credits and contributions. The LEL gives you credits, the primary threshold and above gives you contributions. Certain state benefits such as income/contribution based job seekers allowance can only be claimed based on contributions and not credits. That is why I advise the primary level. I hope this helps.

[@freebee354]

What happened if i dont withdraw dividend after paying corp tax. And leave that money in the company, do i have to pay corp tax on that amount in next accounting year?

[@tonydCFO]

Hi Free Bee, simply put you only pay corporation tax once on trading profits. The post-tax money is then held in a reserve, and you don't pay corporation tax on it again.

[@egorcazacu627]

What do I do when I trade on P2P I have a turnover on a card of 10,000 pounds a day? The bank has already blocked my account 2 times. I explained it to them, but they told me I couldn't do it anymore.

[@MayorSom]

You are at the wrong place mate. This is geared towards actual biz owners, not get - rich quick scheme pushers

[@iptrust7985]

@iptrust7985 I BOUGHT USED CAR £15K CASH, TROUGH MY LTD(I am 100% share holder of the company). CAN I RENT or lease TO ME AS A SOLE TRADER(uber porpose)? AND PAY MONTLY RENT +% BACK TO THE COMPANY TILL I REFUND THAT £15k+%? Thanks

[@RR-hf7sl]

Great videos! Thanks

[@tonydCFO]

You're welcome RR!