Advice and guidance on Salaries, Dividends and Expenses

When you're self-employed or working through a limited company, you need to know how to structure your pay to ensure maximum tax efficiency. This pay structure includes your salary, dividends, and expense reimbursements.

Claimable expenses

Claimable expenses are any expenses that get incurred during the course of your business's day-to-day duties. Typically, these would be things like: 

• travel expenses to your clients' premises
• setting up a website
• business mobile phones and landlines
• business internet
• laptops and other equipment purchased for business use
• accountancy
• subsistence (such as lunches) for when you're working away from your usual place of business
• home working expenses (if you regularly work from home) in proportion to the amount of space and the time that you spend working from home
• Insurance
• Printing and advertising 

An expense is generally not claimable when you derive a personal benefit from the purchase. For example a suit that you purchase for work could be used for other occasions as well, so it's typically not claimable.

The effect of claiming back an incurred expense is that you save on the corporation tax payable on your company’s profit. The current corporation tax rate is 20%.

For advice or more information, chat to any of our consultants or with your personal accountant. 

Salaries

Salaries, paid to the director and any other employees, are also claimable expenses for your limited company. However, PAYE and NI are usually payable on any salaries. There are various rates and thresholds for PAYE and NI. 

Ask your personal accountant to:

• advise on what levels of salary will be tax-efficient
• what PAYE and NI will be payable
• apply for your company’s PAYE scheme 
• let you know when and how to pay PAYE and NI

Dividends

If you are the director and/or a shareholder of a limited company, you can pay yourself a portion of the company's after-tax profits in the form of dividends. Dividends are not taxable as long as the individual’s taxable earnings are below a certain point (currently around £43,000 p.a.).

Because of the tax-free allowance on dividends, they are one of the most tax-efficient ways of withdrawing funds from the company. However, depending on your circumstances and future plans, you may be able to retain funds in your company for withdrawal at a later (and more tax-efficient) date. Your best best is to discuss the options with your personal accountant or one of Sable's financial advisers

For more advice on any of the above, call or drop us an email on 0808 129 5990 or newbusiness@sable-group.com

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