How do you Pay Yourself when you Start a Business

How do you Pay Yourself when you Start a Business

Understanding Payroll When Starting a Business in the UK & Paying Yourself as a Business Owner

Starting a business is an exciting journey. With all of your hard work and dedication, you can’t wait to start getting paid. But how do you pay yourself? What are the laws and regulations surrounding payroll when starting a business in the UK? Read on to find out more information about how to pay yourself when you start a business.

The Options for Paying Yourself as a Business Owner

When it comes to paying yourself as a business owner, one of the main options for small businesses is to pay themselves via salary, when operating as a Limited Company.. This means that you will need to register with HMRC as an employer and deduct taxes from your salary accordingly before passing it on to yourself. This option works best if you have an ongoing salary or regular income from your business activities. You can also pay yourself dividends from company profits, however these are taxable too, so make sure you factor this into your calculations. 

When paying yourself as a business owner, as a limited company owner, if you are a shareholder, you can also make payments to yourself via a dividend, when you business is profitable. This dividend is not taxed when you receive the money, but instead is declared via a personal tax return annually and tax paid then. 

It’s also worth noting that if you take money out of your business and are operating as a sole trader, then this will be classified under ‘drawings’ by HMRC and will not be subject to tax deductions at source (e.g PAYE). Although you are still liable for tax on those amounts, they are not treated as wages - therefore no National Insurance Contributions (NICs) will be due either on those amounts taken out of the company by way of drawings. But you will then have to submit a personal tax return and declare your sole trade on that tax return. That is how you will pay tax. 

Understanding Tax Implications When Paying Yourself

If you are on payroll, then that money will be taxed at source, and your company will make the appropriate PAYE and NI payments over to HMRC. 

If you are paying yourself a dividend or are a sole trader, you will declare those via a personal tax return and tax is calculated at that point. 

Paying yourself when starting a business can seem overwhelming but understanding payroll doesn't have to be difficult! Knowing the different options available including salaries and dividends, as well as understanding any tax implications associated with taking money out of your limited company is key when making decisions about how you want to get paid once your business gets up-and-running. With careful planning and professional support where needed, you'll soon be able to enjoy the fruits of all your hard work!

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About the Author

Annette Ferguson 

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.