Throughout the entire process of setting up and running a limited company, it’s important to remember that any profit your company makes is completely separate to your personal finances. If you plan on withdrawing funds from the company, it must be done either through a salary if you’re an employee or dividends if you’re the owner.
Luckily, you’re able to achieve the most efficient method of income by splitting your payments between dividend and salary as both the shareholder and director of the company. Here’s a brief guide to how you can gain the most cost-effective income as possible from your business through both dividend and salary.
In simple terms, this is money you can withdraw from the company’s profits as a shareholder after corporation tax has been paid. Before doing this, it’s essential to ensure your company has sufficient profits to withdraw dividends, otherwise any money you withdraw could be classed as a director’s loan.
You have the freedom to choose whatever salary you like from your company funds as long as the company has sufficient funds available. But, if your limited company falls outside IR35, paying yourself at a salary lower than the National Insurance contribution and tax free threshold is likely to be the most efficient.