Getting paid using a Limited Company

Invoicing your client

If you use an agent, you’ll normally send them your timesheet and they will produce an invoice for you. If you’re working directly with a client, you’ll need to produce an invoice so they know how much to pay you. The agent or client will then pay the invoice balance directly into your company’s bank account.

Claiming expenses and mileage

Unless you’re subject to IR35 (see previous page), you can claim expenses and mileage. Typical day to day expenses include travel to and from your client’s office (including 45p per mile driven in your own car), subsistence (lunches etc), and accommodation costs if you’re away from home overnight. You’ll simply repay the amount you owe yourself from your company’s bank account, and your expenses will reduce your overall tax bill.

Paying yourself (and others) a salary

Next, you’ll likely pay yourself a salary. This salary will be subject to the same employers and employee taxes as if you were a regular employee. You have the freedom to determine how much you’d like to take as a salary. In general, the more you draw as a salary, the less tax efficient you are. Some people like to set a salary at a level that covers their household outgoings, and no more. Others like to draw £12,500 – this is your personal allowance, the amount you can earn before paying income tax.

You’ll pay yourself the net salary directly from your company’s bank account, and you’ll pay the taxes to HMRC every quarter.

Paying into a pension

If you’re saving for retirement, you can pay directly into a company pension scheme. You can invest up to £40,000 tax free per year into a pension and for every £100 that you pay into a pension scheme, it effectively only costs your company £81, because it reduces your corporation tax bill. This is undoubtedly the most tax efficient way to withdraw profit from your company.

Paying corporation tax

You now need to pay corporation tax on the money that’s left over. Your accountant will calculate this for you, and tell you when you need to pay it – again, it’s a simple payment to HMRC from your company’s bank account. As it can be so long between payments, you’ll need to remember to set the money to one side – we’ll shortly show you how inniAccounts makes this straightforward.

Saving for a rainy day

The money that’s left over is your profit, after tax. You now have two main choices: save it, or withdraw it.

You can keep it inside your company – perhaps you have a savings or investment goal, or if you’re planning on working, for example, 9 months on, 3 months off, retaining profit inside your company is helpful to smooth your income. In this case, there’s nothing left to do. Just keep the profit in your company’s bank account.

Paying yourself (and others) a dividend

If, on the other hand, you’d like to withdraw it, you can take it out as a dividend. This is a payment that you receive as a shareholder in the company. You can take a dividend whenever you like, you just need to make sure you have enough profit left to cover it!

When you withdraw a dividend, you’ll need to pay personal income tax on the dividends. You can draw £2,000 per year tax-free, and after that, the amount of tax you’ll pay varies depending on if you’re a basic, higher or additional rate taxpayer.

The eagle-eyed readers will have noticed that your company has already paid corporation tax on this money, and now you’re paying personal tax. Does this mean you’re paying tax twice? Yes, and no. You are paying two taxes (corporation tax and income tax), but the rates of income tax are reduced to net out the impact of the corporation tax:

Unlike payroll, you don’t need to pay any National Insurance (employers or employees) on dividend income (National Insurance on payrolled income is up to 25.8%).

Walkthrough – getting paid using inniAccounts

Whilst there are more steps to getting paid using a limited company compared to an umbrella company, it doesn’t have to be time-consuming.

That’s the ethos behind inniAccounts: to make running a limited company as effortless as possible. As former contractors and consultants, we know that technology can be used to cut down on admin. Our clients only spend a few minutes per month managing their limited companies, thanks to our innovative tech – and that’s why we’ve won a Queen’s Award for Innovation.

We have three exclusive features, designed to save you time:

Quick entry

You can record your time, mileage and personally-incurred expenses in a single area. This information is used to pre-populate your invoices (speeding up the process, and helping you bill accurately) and automatically triggers the repayment of mileage and expenses in your next payslip. You can also access quick entry from your Android or Apple mobile device.

Automated payroll

Every month (or week if you prefer), your payroll runs automatically. You decide how much you’d like to pay yourself, and it runs automatically month in, month out. It’ll calculate all of your employment taxes for you, and tells you what to pay yourself, when. Plus, it will automatically repay your expenses and mileage, meaning you’ll never miss out on saving tax.

Dividends and personal tax planner

We’ve made dividends easy too. When you’re ready to pay a dividend, we’ll tell you exactly how much profit you have after corporation tax. What’s more, we’ll then tell you how much personal income tax you’ll need to pay if you take the dividend. You can change the dividend amount and the taxes forecasts are updated instantly. There’s no more guessing, crossed fingers and unexpected tax bills!

Instead, you’ll get insightful information, in real time – so you can pay a dividend with absolute confidence. This innovation is unique to inniAccounts – no other accounting software does this.

Test drive inniAccounts today, for free

These are just three of the features in inniAccounts. Our end to end software allows you to run your entire limited company, from bookkeeping through to invoicing, pensions, file storage and much more. Our software is backed up by our team of expert accountants, giving you a complete accountancy service.

You’ll be in good company – we’ve helped thousands of contractors and consultants start out, and you can read many of their stories on TrustPilot.

Forming a limited company

We’ve made the process of setting up a limited company effortless and we’ll take care of the entire process for you. Your accountant will call you to walk through the structure to make sure it’s right for your circumstances, then we’ll incorporate the company and register it with HMRC. We can even help you open a business bank account if needed.

You’ll need your company in place to sign a contract with an agent or client. Whilst forming a company takes less than 24 hours, it can take a few weeks for your bank account to be opened. That’s why we recommend starting the processes sooner rather than later.

If you’re ready to get started, simply head over to our pricing page now to discover our services.