Do you know what your take home pay could be?

by admin on 17 April 2011

Here is a very useful guest blog from Elaine Clark, MD of Cheap Accounting, an innovative and cost-effective accounting practice for small businesses.

Limited company director – Do you know what your take home pay could be!

Many of you may be operating your own limited company.

It might be:

  • just you on your own
  • you and your partner / spouse
  • you and employees

One thing is sure – you have a company to earn a living and build a business.

So how much can you pay yourself?


From April 2011 you can pay a salary of £589 / month without paying any tax or NI.

At this level:

  • You do get National Insurance Credits towards some benefits e.g. pension
  • You do have to register as an employer and complete employers annual returns
  • You do not have to pay any tax or national insurance
  • This is a perfectly legal and acceptable way of paying yourself from your company


One of the tax efficient ways to operate*as a shareholder of a limited company is to pay anything over and above the salary as dividends.

A dividend is the distribution of ‘after tax profits’ so it is essential that the company has sufficient retained profits to pay a dividend.

If this rule is not followed then the dividend could be viewed as an unlawful distribution of the company’s funds.

No additional income tax** is due on dividends received where the total income of the person is below the higher rate threshold.

The higher rate threshold from April 2011 is £35,000.

Assuming that you have no other income at all, you can pay a divided from the company of £31,866 before you pay any additional income tax.***

Other income covers interest received, rental income received, additional dividends etc


On an annual basis you can pay:

  • salary of £589 / month = £7,068 / year
  • Net dividends from the company of £31,866
  • Total £38,934


*subject to your specific circumstances. We recommend you check with your accountant that this is best for you. This is a guide only and should not be relied upon for your tax planning.

**Corporation tax has been paid on the company profits at 21% until 31 March 2011 and 20% from 1 April 2011. So whilst the above is free from additional income tax, corporation tax has been paid on the profit where profit = income less costs (the salary is an allowable cost).

***Calculation for dividend – here is the maths!

Personal allowance £7,475

Higher earnings threshold £35,000

Gives total income of £42,475 before additional income tax is due

Salary of £7,068 leaves gross dividends of £35,407 to be paid

Net dividends (the amount paid from the company) £35,407 / 100 * 90 = £31,866

Elaine Clark is Managing Director of Award Winning online accountancy practice provides cost-effective accounting to small businesses; combining online bookkeeping software with consultations with qualified accountants. Sokratis Papafloratos of Trusted Places, part of said this about Elaine and

“By offering free advice and industry insight, company founder Elaine Clark has positioned herself and her business as a thought leader within the industry and a trusted adviser to accountancy firms.”

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