As a company owner/director, you have the potential to decide how to pay yourself – salary or dividends, however, how do you decide how much to pay yourself? 

This guide will take you through the factors you should consider when deciding how much to yourself and some tax-efficient options for extracting money from your business. 

For specific advice on your personal circumstances, contact a member of our Client Services team – we are always happy to help. 

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What to consider when deciding how much to pay yourself

Once you have considered the options on how to pay yourself, the next question to ask is “how much should I pay myself?” At the start of your business journey, your company might not make a profit and you may wonder how much you should take out of the business to pay yourself. As your business grows, you may consider more detailed tax planning to ensure you continue to minimise your tax bill. For specific information on your circumstances, reach out to our team today.

1) What is your cash flow situation?

Look at your current cash flow situation and determine whether there is enough money after your bills are paid to pay yourself. When doing this, it’s also a good idea to set aside some money as a cushion for a rainy day, in case of sudden unexpected expenses. Good cash flow management can help to ensure that there is enough money to cover all your bills as they come due.

2) What are your business goals?

Think about the goals of the business – do you want to sell your business for a profit down the line or are you running the business to create a source of income for yourself?

By understanding what you want from the business, you can start to focus and run your business in a way that helps you to meet your goals.

For example, if you are thinking of selling your business, you may need to consider how to create value in your business to make it attractive to competitors or management. This may mean reinvesting any leftover cash to help it grow, rather than taking a salary straight away.

3) What are your personal needs?

Think about how much money you need to pay your personal expenses, such as household rent or mortgage, bills, and expenses. Setting up a company is a big commitment and it’s understandable if taking money from the business is non-negotiable. It’s important that you value the time you invest in your business.

However, it is good to note that many business owners pay themselves modestly, especially in the early days. One way to ensure that you pay yourself in the most tax-efficient way is to ensure that you are availing of all the tax credits, reliefs, and schemes available to reduce your tax bill.

Tax implications of paying yourself from your business

When you take an income from your company, you will be obligated to pay tax on it. The rate of tax you pay will depend on how much you pay yourself.  

One of the benefits of setting up a Limited Company is that you can plan your salary so you can stay in a lower tax bracket and pay less tax. For this reason, many Sole Traders decide to change to a Limited Company once they start earning a high amount.  

If you have any questions about the most tax-efficient way you can pay yourself – talk to us today and we are happy to help. 

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Our client services team are always happy to talk to you about what's best for your needs

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Need help?

Part of owning your own business is deciding how to compensate and reward yourself for the time and work you put into running it. We can help you decide how much you should pay yourself as well as other options for extracting value from your business. 

For help deciding what’s best for your personal situation talk to a member of our Client Services team today. 

Need Help?

Our client services team are always happy to talk to you about what's best for your needs

Get Started