Best way to pay myself a salary

[Sugar Ray]

Hi

I have recently started my own business and am not sure whats the best way / most tax efficient - pay myself a normal income or pay myself via Dividends

Thanks

[buildersmate]

This is a relatively complex subject so you are probably going to need the help of a tax accountant. The basics are that if you are self-employed, you pay self-employed NI at about 10% (can't remember exact figure) and tax on your earnings, less expenses. If you set up as a limited company, the limited company can pay you and any other Directors as employees, and/or it can pay you Dividends. If it pays you as employees you pay NI and PAYE tax as employees, but your limited company also has to pay Employers NI. Corporation Tax on small businesses that make less than �300k annual profit is less than higher rate personal income tax.

The advantages of being limited company (apart from the personal limited liability ones) are that you can employ your partner in the business and use his/her tax allowance - assuming he/she does not work elsewhere of course. You have also got far more flexibility to play tunes with allowances and expenses - which are offsetable aganist tax of course. So you see, it isn't straightforward. Unless/until you are earnings over �40k it is unlikely to be better for you to be pay yourself through Dividends.