Why do you need to pay yourself?
As the owner of a limited company, you may feel pressured to leave as much money in your business as possible. However, it’s just as important to look after not only your future but also your business’s. Looking after yourself well will help to ensure a healthy work environment, guaranteeing that the quality of your work stays consistent and high.
How to pay yourself
All employees of a limited company, including its owner, are paid a salary. To do this, you first have to register as an employer with HMRC on the government’s website. The payments are then made through the PAYE system. Taxes and national insurance are calculated and collected automatically.
As the owner, you may also receive dividends. These are calculated from the business’s annual profit and are tax-free under £2000.
How much to pay yourself
The question of how much to pay yourself comes down to how much you need versus how much your business needs. Make sure that you have a well-prepared budget in place. This will allow you to plan where your money goes better.
When budgeting for yourself you’ll want to consider:
- Any household payments (rent, mortgage, bills, council tax)
- Essential items (clothing, toiletries)
- Sustenance (food, drink)
- Transport (vehicle payments)
- Personal savings
- Costs for personal wellbeing (entertainment, socialising)
When budgeting for your business you’ll want to consider:
- Estimated expenses (fuel, office rent)
- Projected business growth (new equipment, new employees)
- Who else needs to be paid (salaries)
- Spare funds in case of emergencies
You should also consider what the average salary for someone in your sector is. You can find this information by searching for a salary calculator online and inputting the relevant information.
For more advice on how to budget, visit our blog.