Remuneration
Q. Do I need to take a fixed salary every month?
A. There is no hard and fast rule on this but it is probably in your own interest to withdraw a regular salary to meet your personal day-to-day outgoings.
Q. Once I have decided on a salary, how do I calculate how much I pay myself after tax?
A. We would run a payroll for your Company and would calculate all tax and national insurance on the salary you have decided to pay yourself, notifying you of the net salary due to be paid.
Q. Some people have told me they pay themselves a dividend. What are dividends?
Dividends are a way of paying the company profits to you, the shareholder.
Q. Can I take dividends from my company?
A. This will depend on your IR35 status, as dividends can only be paid where your contract falls outside the provisions of IR35. We will advise you on this at the start of your contract.
Q. Can I pay dividends every month?
A. As long as there is a company resolution declaring the dividend payable to the shareholder, and the dividend does not exceed the company’s retained profit, then there is nothing to stop you drawing against that dividend as often as you wish.
Q. How much tax is payable on dividends?
There are 3 rates of dividend tax - 10% (basic), 32.5% (for higher rate taxpayers), and 42.5% (for earnings over £150k p.a. from 6/4/2010). To calculate the tax payable, a 10% tax credit is added to your net dividend, so if you pay yourself a £1,000 net dividend, you are actually taxed on £1,111.
After taking into account this tax credit, there is no extra tax to pay if you are a basic rate taxpayer, and the effective dividend tax rate for higher rate taxpayers is 25%. This is the approximate amount of income tax you should set aside.
Q. Why don’t you have a net pay calculator on your site?
A. We do not believe there is a ‘one size fits all’ calculation, as each contractor, and in fact each contract, throws up many different possibilities. We will give you a tailored calculation of your projected net return on request.
