If you’re setting up a company and need your capital to live off as well as to fund the new business, the idea of taking a salary seems “out of the question”, says Tax Tips & Advice. But you should do exactly that.
“For every pound your company pays you it will get a reduction from its corporation tax (CT) bill of at least 20p.” Where the company makes a loss, the salary will increase it, and the loss can then be “carried forward and set against later profits to reduce CT bills in these years”.
Ideally, set your salary between the lower earnings limit (£5,304) and the primary earnings threshold (£7,228) so neither you nor the firm has to pay national insurance (NI). For tax and NI, directors are “treated as receiving salary as soon as the board approves it”, “it doesn’t actually have to be paid”. So record it in the minutes and “add it to the money the firm owes you”.
That way, “you’ve gained your firm a CT deduction and increased the amount you can take later tax and NI-free”. Plus you’ll get a credit to your state pension record. And do send in a P14/P60 when you submit your firm’s PAYE return.