How Much Salary Should I Get From a Limited Liability Company?

Why would I choose a greater pay over a lower one?

If you’re thinking about taking a pay rise, it’s important to understand what it really means. A high salary doesn’t necessarily mean you’ll make more money. You could end up earning less because of things like maternity leave, tax breaks, and health insurance. But there are plenty of reasons why someone might want to take a higher wage too. Here are some of the most common ones..

Paying yourself in dividends

If you run a profitable company, there are two ways to distribute profits. One option is to invest the money back into the company. But what if you want to give some of the money away to shareholders? There are several benefits to doing this.

The most obvious benefit is that you’ll save taxes. Dividends are taxed at just 15% compared to the 40% corporate tax rate.

Another benefit is that you can make sure that you’re at optimum taxation efficiency. By combining your dividend income with a salary, you could reduce the amount of tax that you owe.

You might also consider paying yourself a bonus or commission. These are often taxed at up to 45%. However, if you combine them with a salary, you won’t have to worry about paying too much tax.

The tax ramifications of receiving a salary

Your company must pay National Insurance Contributions (NICs) on any earnings over 10,000 pounds per year. This applies regardless of whether or not you take any salary. If you are paid less than 10,000 pounds, you do not have to make any payments.

The amount of NICs you pay depends on how much money you earn over 150,000 pounds. You start paying NICs once you reach this threshold. Here’s what happens if you earn more than this amount:

If you earn between 151,000 and 200,000 pounds, you pay 15% NICs on everything you earn over 10,000 pounds.

If you earn between 201,000 and 250,000 pounds, you will pay 20% NICs on everything over 10,000 pounds

If you earn between 251,000 and 300,000 pounds, you have to pay 25% NICs on everything above 10,000 pounds

You don’t have to pay any NICs if you earn under 50,000 pounds.

A salary of 100,000 pounds could mean paying around 5,500 pounds in NICs each year

Income tax

The government announced today that it will raise taxes on those earning over £16,500 per annum. The move follows the Chancellor Philip Hammond announcing his Autumn Budget earlier this month. He said that he wanted to ensure that people pay their fair share of tax.

According to HMRC, the changes mean that the basic personal allowance will increase from £10,600 to £12,500 per annum, and the higher rate threshold will rise from £41,450 to £45,300. This means that anyone earning more than £16,500 will now face a marginal rate of 20% on earnings up to £125,000, rising to 45% on earnings over £150,000. Those earning less than £8,100 will no longer be liable for income tax.

Those earning between £8,100 – £16,500 will see their tax bill go down by £1,400, and those earning between £16,501 – £50,000 will see their tax bills fall by around £2,700.

HMRC says that the changes will come into effect from April 2018.

Employee National Insurance Contributions

The government has announced changes to employee national insurance contributions (NICs). From April 2020, employees earning up to £10,000 per year won’t have to pay NICs. This threshold will increase annually by inflation until it hits £15,000 in 2022. At that point, employers will have to start deducting NICs from salaries above £50,000 per year or £2,500 weekly.

There are different limits for those who pay NICs through payroll deductions, such as PAYE, PRSI or PPSR. For example, directors and shareholders do not have to pay NICs unless their annual earnings exceed £150,000 or £7,500 per week respectively.

Employer National Insurance Contributions

A recent HMRC ruling states that employers must pay national insurance contributions (NICs) on all salaries paid to board members over £150k per year. This includes both full-time and part-time directors, even if those directors are employed outside of the UK.

The rule applies to all companies regardless of size, sector, location or nationality. However, there are exemptions to the rule. These include:

• Directors who work exclusively for the employer;

• Directors who do not receive remuneration for their services;

• Directors whose employment is limited to a specific role;

• Directors who perform duties related to the organisation’s charitable purposes; and

• Directors who are exempt under the Employment Rights Act 1996.

Putting it all together – the optimal method of director compensation

Pay yourself a salary up to the lower earnings limit. If you do this, you won’t pay income tax or National Insurance on the amount you’re paid. This is because you’ve earned less than £10,600 in the previous tax year. However, you’ll still need to declare the full amount of your salary to HM Revenue & Customs.

As you reach the higher earnings threshold, you might consider whether you’d like to work part-time too. If you do decide to take on extra hours, you’ll need to factor in how much you could earn if you did. This is called “earnings projection”. For example, say you wanted to make £25,000 per annum working 40 hours per week. Then you’d multiply this figure by 52 weeks to find out how much you could earn over a year.

You may need to check what action takes place if you go over the Higher Earnings Limit, depending on the type of contract you hold. To avoid paying interest charges, you’ll probably need to borrow the difference.

Accounting software is essential for keeping track of all your financial transactions. Many companies offer free trial versions, allowing you to try it without having to buy anything.

What are dividends?

A dividend is just another word for “dividend.” It is the payment of money to investors out of a company’s profits. In some companies, the whole profit goes to shareholders; in others, it is divided up among shareholders based on how many shares they own.

When you invest in a company, you buy shares in it. When the company makes a profit, it pays out some of those profits as a dividend. This happens because shareholders want to see the company keep making money, so they’re happy to receive a portion of the profits.

Companies don’t always make a full payout – sometimes they decide to keep most of the profits to use for reinvestment purposes. But they still pay a dividend, because shareholders are getting part of the profits. Companies often say that they’ll give a certain amount of the profit each year as a dividend, but they might end up paying less than that. They might choose to pay a smaller amount every quarter, or even once a month.

The benefits of taking dividends

If you take a salary, you will pay taxes on it twice – once on your income and again on your capital gains. If you take dividends, however, you will pay taxes only once – on your dividend income. This could save you thousands of dollars every year.

Your dividend allowance

If you’re thinking about investing some money into shares, it might be worth considering how much you’ll be able to keep out of income tax. In fact, there are three different allowances you could claim – each one giving you slightly different benefits.

The basic personal allowance is set at £11,850 per annum. This gives you an annual tax free allowance of £5,450. However, if you invest in shares, you won’t actually receive any cash from the company; instead, you’ll just be given a proportion of the profits.

This means that the value of the dividend you receive will depend on what percentage of the company’s profit you own. If you own 10% of the company, you’ll receive 10% of the profits, meaning that you’ll end up paying less tax.

However, if you own 90% of the company, then you’ll receive 90% of the profits. But because you’re receiving such a large portion of the profits, you’ll still be liable for capital gains tax.

So how does this affect you? Well, if you’re lucky enough to earn over £11,850, you’ll qualify for the dividend allowance. This means that you won’t have to pay tax on any dividends you receive above £10,600. And if you do exceed this amount, you’ll only pay 20% tax on those dividends, rather than 40%.

But remember, dividends aren’t paid every month. Instead, they’re usually paid once a quarter, or even annually. So, if you want to take advantage of the dividend allowance, you’ll need to make sure you’ve got enough money coming in throughout the year.

Frequently Asked Questions

Who is eligible for statutory redundancy pay?

You might think it’s hard to lose your job. But if you work in certain industries, you could qualify for statutory redundancy pay – even if you weren’t directly affected by a reduction in workforce. This is because some jobs are deemed to be essential to national security, public safety, health and wellbeing, or the economic well-being of the UK. In these cases, employers must offer redundancy payments to workers who lose their jobs due to a reduction in force. These payments cover up to 80% of your salary for 12 months. If you’re eligible, you don’t need to ask for it; it just happens automatically.

The rules around what qualifies as being an “essential” role vary depending on where you live. And while you won’t always receive redundancy pay if you lose your job, you do have the option to claim it. Here’s how to find out whether you qualify.

Who is ineligible for statutory redundancy pay?

The government has announced it will no longer provide statutory redundancy payments to people working in certain jobs. This includes those employed in the following sectors:

police officers

armed forces personnel

Crown servants

parliamentary staff

share fishermen

Justice of the peace