Tax efficient ways to pay yourself: salary or dividends? Updated for 2015/16

Editors note: originally published 6 April 2012 and republished each year since as changes in tax law were announced.

A common and sensible question that small business owners trading through a limited company often ask is ‘how do I pay myself in the most tax efficient way’?

The answer to this question is refreshingly simple: use a mixture of salary and dividends.

Salary

Salary is the term used to describe money paid to you as an employee of the company. Money paid in this way must be taxed at source (i.e. by the company before it is passed to the employee). This scheme is called PAYE (Pay As You Earn) and ensures that companies deduct both income tax and national insurance from employees salaries and pay it directly to the tax man.

Pay £671 per month as salary

Optimising salary is mainly about National Insurance thresholds.  You need to pay enough salary to avoid gaps in your record but not so much that you start to incur National Insurance payments. In most cases you should pay yourself a small salary that falls just below the limit at which national insurance becomes payable. For the tax year 2016/17 this figure is £671 per month. Continue reading “Tax efficient ways to pay yourself: salary or dividends? Updated for 2015/16”

How to write a good business plan

Writing a business plan can seem intimidating. You know you need one, but how do you get it right? The last thing you want to do is make a fool of yourself, right?!

The first key is to understand that a business plan is not a single fixed idea. A business plan will look very different depending on the nature of the business, the stage of the business and, crucially, the intended audience of the business plan. So relax, take it easy, and follow this step by step guide to preparing a the best business plan for your circumstances. Continue reading “How to write a good business plan”

How to define salaries and pay rises for your employees

In the early stages of running a business you can get away with a pretty ad hoc approach to salaries but as your business grows you need to move to something more systematic.

For the first few employees it is possible to get by with rough benchmarking, tested by whether or not you attract applicants. Salary reviews can often be reactive affairs in response to dissatisfied or ambitious employees pushing for more money.

Once you get past a handful of staff everything starts to get more complex lack of a clear strategy can quickly become a headache. Before you know it you can find yourself facing multiple salary-related challenges.

This post sets out a few ideas on how to deal with the salary related challenges that your business will face. Continue reading “How to define salaries and pay rises for your employees”

How to prepare a set of management accounts (the basics)

This is a big topic and if you are pretty new to accounts there is a lot to learn.

This post is aimed at small business owners who aren’t accountants but want to engage seriously with their finances. It’s easy to think that management accounts is something you can forget about and just leave to your accountant once a year. This is fine if you are just trying to get by. It’s fine if you are running a ‘lifestyle’ business. But if you want to grow your business you need to understand what is going on. Continue reading “How to prepare a set of management accounts (the basics)”

Board skills audit: building an effective trustee board

1) Take a broad view of ‘relevant skills’

It can be easy to focus in on practical skills first: who will look after the finances? who will review policies? Practical skills are essential but don’t neglect the ‘soft’ skills.

The Educator

A board is just like any other team or group: it has the capacity to grow and improve but is unlikely to do so without some intentional skills development. Some people are great at pushing forward a board and keeping it learning.

The People Person

Directors and trustees often have to make hard decisions and manage change, both inside the board and within the organisation they govern. This needs people of diplomacy, tact and compassion.

The Enthusiast

It can sound naive, but the drive and energy that comes from genuine enthusiasm can be a powerful force when harnessed by a well balanced board. This can often be an argument for youth and new faces, but not necessarily so.

The Politician

Most organisations can benefit from partnerships and external input. It is therefore important to have people on the board who know how to network, manage external relationships and advocate.

The Strategist

Boards should be active in shaping the future direction of their organisation. For this reason, they need people who anticipate future challenges and generate vision.

The Analyst

A major part of trustees’ legal responsibility is to keep a charity accountable to its objects and best practice. This requires board members to spot problems quickly and understand an operational context they are not part of on a day-to-day basis.
Continue reading “Board skills audit: building an effective trustee board”