Paying yourself a salary as a Sole Trader
There is no hard and fast rule as to when sole traders should consider paying themselves through a Limited Company, as opposed to directly to themselves as a sole trader, but anyone earning over £15,000 should at least consider the options for themselves as there could be valuable tax advantages to be gained. We can advise you as to the best ways to manage income within your business.
Paying yourself a salary from your Limited Company
Income from a company needs to be managed at two levels – payments due to be paid from the company to the individual and mandatory payments that the company has to pay e.g. corporation tax.
Peter Plumber does not take all his profits from his business when he is paid and takes an income split between salary and dividends.
Peter plumber benefits from the lower rate of tax for dividend payments, after corporation tax has been paid and pays less national insurance as his income in the form of salary is less.
Luke on the other hand has taken all the profits out of the company to pay himself a good salary, meaning that he has a lower net income and higher business costs to pay.