best way to pay a company director?

[MommyUpNorth]

My DH and I are currently running a ltd company and for the last 2 years I've been a director & am being paid through the regular payroll (paye/ni) system. Just wondering if anyone knew if this is the best way to receive my salary from the company? Our accountant has recently got the boot as she didn't want to help with these questions, plus other issues about her methods, and we're reluctant to fork out for another one or a financial advisor and then not get the advice we're looking for.

I thought that as long as I was receiving child benefit my NI contributions would be ok for any time not working/paying? So I'm wondering if it's really best to pay through PAYE as I seem to be paying out an awful lot. Are dividends better? Or I think I read somewhere about a director's account? Could someone point me in the right direction of finding out what would be best for me?

Many thanks!

Dividends are usually better, though there is Ir35 to be dealth with perhaps.
Also there are expenses to be claimed...

We have a reasonably decent accountant who's good on this stuff.

Dividends are more tax efficient, but I would advise you use an accountant. When I was self employed I took a small salary but large monthly dividends. You could ask other people you know with small businesses if they would recommend their accountant.

A financial advisor is not appropriate - they make money from advising about investments, not income.

Thank you both very much for that. Most people up here are farmers and self employed, rather than ltd. We've been through 2 accountants so far and with both we've found errors in their work, so we have really run through everyone in the area. Perhaps will look elsewhere.

Thanks again.

I have never met my accountants - I don't think it matters very much where they are located. I have always found them efficient and I have never spotted any errors. You can look them up at \link{
www.boltoncolby.co.uk/bccharteredaccountants.asp\accountants}

I deal with some clients who see me only once a year but telephone when they want advice or assistance so you don't necessarily need to be on the doorstep of a good accountant to access their services. I have overseas tax return clients who communicate by e-mail and fax !

I act for a lot of smaller, family run ltd companies who take a small salary from the company, (above the lower earnings limit to ensure that they get a credit towards their state pension but low enough to avoid having any tax and NIC deducted)
plus dividends which are not subject to NIC and only subject to tax if you are a higher rate tax payer.

Despite recent changes to company taxation, it is still tax efficient to operate as a company.

Despite having Home Responsibilites Protection from being in receipt of child benefit (keeping up yout NI contributions record), drawing a salary (of the level described above) from the company is tax efficient as it means more tax free income into the family pot and your salary from the company is tax deductible, thereby decreasing the amount of corporation tax the company pays.

The thing about the director's account is a bit of a red-herring as any director's loan account (money drawn from the company not justified as salary or dividends) is subject to Inland Revenue scrutiny if overdrawn and potentially attracts a tax charge as iff the money had been distributed as a dividend. A director's loan account can just make things easier from a day to day bookkeeping point of view but all monies drawn from the company need properly documenting as salary or dividends to be justified in the eyes of the Inland Revenue.

If you want any more specific information get back to me on this thread although I am just going out to see a client for the afternoon as soon as I've polished off this half eaten sandwich.

Ooh I've just noticed that you are also a mummy. Do you have registered childcare provider costs and if so are you making best use of childcare tax breaks too ?

Thank you very much for that message AA! I am using the £50 per week option out of my salary when I use the after school club for 2 of my little ones.

You sound like you know your stuff and that was what I was looking for from our old accountant! If it isn't against the MN rules, could you possibly email me on sara dot herrick at gmail dot com so that I could ask you about you! :)

Thank you clerkKent as well. Will have a browse through their site this evening.

I am based in the midlands, where are you based ?

Have made a note of your e-mail address and will hopefully get time this weekend to correspond with you under my RL name. I generally only browse mumsnet at lunchtime, sandwich in hand.(Work time is concentrated on meeting a couple of very tight 30th April deadlines at the moment and dh and I have promised my little boy a day trip to somewhere special on either Sat/Sun weather permitting)

Can I ask what the other issues were with both your previous accountants. Wrong advice, fee levels ?

What is your bookkeeping system (manual cashbook, purchase ledger etc or spreadsheets or computerised accounts package ?)

We're in the highlands... just had a thought that Scottish rules may be different?

First accountant we noticed purchases being recorded but then no payments against them. She didn't seem able to cope with an expense account vs a credit card account and then was breaking everything down which resulted in double payments to suppliers. She also had a problem with our customer database which is just a standard database...

2nd accountant was very late getting things back to us... Vat return figures coming to us a month after it was due! She also hadn't closed out the payroll last year, and we've just had to redo the entire thing and will now be refunding employees for their overpayments. She also had problems sending secure files/emails which my DH had to set up for her & she still couldn't figure it out!

We're using Sage for both payroll and accounts & it's my DH doing them now, but he doesn't really have the time for it so we're falling further behind. DH has some issues about her entries in Sage mainly with VAT codes and such, but I won't go into everything here.

Totally understand about the workload at the moment, so if you can get in touch whenever you have a free minute, that would be great! :)