The big problem with paying yourself a minimum director salary from your limited company

Author: Russell Smith
January 15, 2014

If you are a director of a limited company, I’m sure you are aware that the most tax efficient way of paying yourself is though a minimum director salary and dividends.

In case you don’t know, the numbers for this tax year (13/14) are here:

Directors salary: £7,696
Dividends : £30,379

Total : £38,075

In the good old days, you could pay all this and the accountant could make a couple of adjustments in the accounts and split your £38,075 across dividends and directors salary – it was very simple.

Not so much now!

With the invention of Real Time Information (RTI) by HM Revenue & Customs, you now have to declare what salary you have paid yourselve EVERY MONTH.

So if you want to pay yourself the director’s salary and you want to pay it monthly, you have to declare it to HM Revenue & Customs every month.

It would be much easier if you paid the salary in one go to save you quite a bit of work but realistically, few directors are going to want to pay themselves the £7,696 in one go at the end of March since the cash flow will come under strain.

If this isn’t bad enough, we are seeing lots of very strange letters from HM Revenue & Customs to do with payroll some of which make no sense at all and don’t seem to resemble the facts, so if you do get one of these letters please talk to us since they can look very scary.

 

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