So you want to get paid?
There are a few things about payroll you need to know about:
No need to register
If you earn £6,000 or less in a year, there is no need for your company to formally register for PAYE. You will need to be registered for Self-Assessment though!
Registering for PAYE - Company
Above £6,000 a year, your company will need to register for PAYE.
We charge £240 as a one-off fee to get your company registered for PAYE, authorities in place and your company set up on the payroll software.
Directors payroll
Directors payroll is relatively simple in that auto-enrolment does not apply. I.e. Directors do not have to join a pension scheme and can take their salary without this deduction.
Staff payroll
Non-directors have to be enrolled in a pension scheme. We use NEST as there is no joining fee (the other government scheme has a £500 set up fee).
There is some paperwork and compliance that is required to be issued to staff in order for your company to fulfil it’s responsibilities. The staff member may, after making at least one contribution, decide to opt out of the scheme.
We charge £75 to register and fulfil auto-enrolment duties.
State pension entitlement
Earning £6,240 per annum entitles you to a credit for state pension contribution purposes – without you actually having to pay any National Insurance or actually contribute!
This is a nice place to be 😊
No National Insurance contributions
At £8,788 a year, there is not National Insurance to pay be either the company or the director. This is, unsurprisingly, the most popular salary for directors who want some salary and the rest of their income comes from dividend.
Company only National Insurance contributions
A director can earn up to £9,500 a year without paying any National Insurance personally – but the company will pay a small amount on the payroll paid. This is not that common.
Tax free personal allowance
The first £12,500 earned in a year is tax free. There will be some National Insurance payable by both director and company at that level – but not PAYE. This is the second most common threshold for directors personal salary.
A gift from the Queen
The Queen gives each company a £4,000 credit each year toward company National Insurance contributions. However, this only applies to employees and not directors!
It might be beneficial where there are more than 1 directors, for any director that wants to take payroll to resign as the company director. They then are merely an employee (and would have to auto-enrol at least in the first instance) but the company would then be able to pay them without having to pay employee National Insurance.
Other stuff
The above is a simplification of payroll and highlights keys payroll levels to consider. It is more complex than that. National minimum wage applies and there are exceptions or variations for certain ages to some of the rules.
A final word of warning
Lenders generally will not accept salary from a property company – talk to your broker about your intentions and the knock-on effect of being mortgageble.
We have seen a lot of self-employed people get wonderfully tax efficient with payroll and under the guidance of their existing accountant. However, they have effectively hung themselves from an investor perspective as they don’t have enough income to qualify for a mortgage. Starting off as a property investor, the goal should be to be mortgagable in the first instance. If that means being less efficient with taxes than otherwise, that is just a business cost.
I took out loans and overdrafts I didn’t need and incurred costs I didn’t need to when I first arrived in the UK to build my credit score.
