Should i pay myself a wage?

tyler_d

I'm starting a limited company and i want to know should i pay myself a wage or just take it out of the profits at the end of the year.

Saruman

I know nothing about business but would there not be some tax benefit to paying yourself a wage? ok ill shut up and let someone who actually knows answer

information

tyler_d wrote:

I'm starting a limited company and i want to know should i pay myself a wage or just take it out of the profits at the end of the year.

1. Always take a wage to use your tax credits, there was a detailed post in this forum about the details, you can take around 8k tax free per year - PAYE/PRSI of 3%

2. How would you take it out of the profits?

tyler_d

Thanks for that. how would i take it out of the profits? I presume i could put it down as some kind of bonus?

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tyler_d wrote:

TI presume i could put it down as some kind of bonus?

a bonus is just a top up of your wages, you still have to pay tax on it as if it was salary

chump

the tax rules are a pain - I should know them but don't

The guts of it is, yes, you should pay yourself a wage - as this will be taken out from above the line with respect to the tax charge.

You will be regarded as a close company. There will be surcharges on any undistributed income you leave in the company.
This means any cash left in the company will be taxed again, and that is BEFORE you extract it and have to pay income tax on it. Close company surcharge for undistributed profits.

Would there be any reason for you to leave money in the company to acquire assets? Probably not - and as such you're probably regarded as a services company.

If you distribute a lump sum to yourself, the company will have to extract a dividend withholding tax (of 20%) and pay this to revenue. Then you'll pay income tax on this and get a credit for tax paid.

So ultimately you get shafted any which way.

So there is no benefit to leaving money in the company. It must be extracted. If the company is going to hang around for a while, great tax savings can be made with respect to setting up a pension fund.

I'm not sure would it be better to pay yourself by way of a distribution or salary. A question to look into is does the company have to pay a prsi and paye contribution?
And secondly does a distribution get deducted prior to tax being charged (i'm guessing so).

But ultimately it is beneficial to be a paye employee in terms of social services and benefits. So I'm guessing it is beneficial up to a certain point to pay a wage and then it might be beneficial to whack the rest out by means of a distribution. But I'm only a rookie - someone needs to look into this

Ultimately the benefits of being the company, are
limited liability
good rates for expense deductions
excellent pension options
and more if investing using company

MartMax

my simple advice - pay wages for yourself if your company can afford it and pay tax in the way other employees do. you can also get some pension contribution by the company. it'd be nice if you could build up the company reserves and at the same time get yourself paid.

Marty