New Limited Company: 'How Do I Pay Myself?' Part 3 - Benefits
Again, congratulations on setting up your new limited company, you may have previously been self employed and decided to move to running as a limited company or you may have set up straight away as a limited company, either way the question of how do you pay yourself is probably on that list of things keeping you awake at night!!
As a limited company you can pay yourself a mix of salary and dividends, and in general a mix is the most tax efficient thing to do. Benefits are also an option to be considered too.
Because this is a big subject, this blog is spread over a 3 part series!
What benefits should I be thinking about?
The honest answer is “it depends” .. it depends on whether you have family, dependants, health concerns, it depends on your age, your life-style .. the list goes on.
But there are some general ones that should be considered:
OK, first up .. I am not a financial advisor and I am not pretending that I am, where pensions are concerned getting the right advice from the right person is key.
However, your company can pay into your pension scheme and these contributions will be an allowable expense for corporation tax.
The money advice service has a free pension calculator and it is worth having a look at this to see what your pension arrangements to date might mean when you retire and what you ought to be putting away .. remember, something is definitely better than nothing!!
Tax efficient life cover
As a company director it is possible to have tax efficient life cover via your business that will pay a lump sum out on your death to the beneficiaries of this cover. This has to be set up correctly to ensure that it doesn’t count as a benefit in kind so it is worth finding the right person to do this for you. This type of cover is only valid whilst you pay the premiums and a bit like death in service cover for employees, you need to be working in and have the business for it to be valid too.
Tax efficient critical illness cover
This is relatively new but it is now possible to have critical illness cover that can be set up in a tax efficient manner so that there is no taxable benefit assessable on you too.
This tends to be set up so as to pay into a trust so it is worth making sure that this is the right thing for you before you take out any cover.
There are varying levels of private healthcare these days from full cover everything schemes to the cashback schemes where you get money back for optician appointments, dental appointments etc.
Private healthcare is a taxable benefit and will need to be reported to HMRC via a P11d form, this means that you pay tax on this and the company will pay Class 1A NI too.
The question of a company car is one that is raised .. lots!! The short answer is that unless you are doing significantly high business miles, then the high level of tax that you have to pay means that it is not worth it. Claim 45p per business mile for the first 10,000 miles that you do and 25p after that (this resets each tax year).
At present, companies can pay for £55 per week (£243 per month) of childcare costs for you via childcare vouchers or by directly contracted childcare (less common but perfectly fine) .. the childcare needs to be OFSTED registered in order to qualify.
This is changing from April 2018 and unless you are already in the current scheme you will not be able to join it.
The new scheme effectively gives tax relief at 20% on childcare costs up to £10k but there are a lot of rules, the best online guide I have come across is this one: