Leading a Community Interest Company (CIC) offers a unique blend of business acumen and social purpose.
While your primary objective might be community welfare, it’s equally important to understand how you can sustainably remunerate yourself.
In the UK, CIC directors have several options, but each comes with its own tax implications and regulatory guidelines.
Here, we’ll delve into methods like Salary, Dividend Payments, Director’s Loans, and Reimbursement of Expenses, as well as touch upon pensions and tax considerations.
A salary is the most straightforward way to pay yourself. In this approach, you become an employee of the CIC. Consequently, your income will be subject to Income Tax and National Insurance contributions. Ensure your salary aligns with the CIC’s financial standing and community objectives. Additionally, don’t forget to issue an employment contract that outlines your role and remuneration package.
Pensions: If you’re taking a salary, you might be eligible for an employer-sponsored pension scheme. It’s a good idea to opt in, as it helps in long-term financial planning.
2. Dividend Payments
Dividends are a bit more complex in the CIC landscape. These companies have restrictions on profit distribution, ensuring the focus stays on community benefit. Dividend payments should be guided by the CIC’s Articles of Association and are subject to personal tax rates.
Taxes: Dividends are taxed differently from salaries, and it might be worth considering your personal tax circumstances when opting for this form of payment.
3. Director’s Loan
A Director’s Loan allows you to borrow money from the company. This should be meticulously recorded in a Director’s Loan Account. Failure to repay the loan within a specific period, usually nine months after the company’s accounting year-end, will incur additional tax implications.
4. Reimbursement of Expenses
Reimbursing expenses is another straightforward method. Here, any legitimate business expenses that you’ve personally covered can be claimed back from the company. Keep all supporting documents, like receipts and bills, for accountability.
Pensions and Taxes: Keep in mind that reimbursements are not taxable and also do not contribute towards your pension.
1. Income Tax: Salary and dividends are subject to income tax, but at different rates. Take the time to assess which option is more tax-efficient for you.
2. National Insurance: Both employer and employee National Insurance contributions must be considered when taking a salary.
3. VAT: If your CIC is VAT-registered, certain reimbursed expenses might be recoverable. Make sure you consult a financial advisor on how best to manage this.
Being a CIC director involves multiple layers of financial considerations. Adhering to CIC regulations and maintaining transparency in remuneration is crucial not only for community trust but also for regulatory compliance. Given the complexities surrounding this subject, it’s advisable to consult financial advisors or tax professionals to tailor a remuneration package that suits your needs and the needs of your CIC.
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If you’re looking for more information on how to pay yourself, our team are here to support you. We’ve worked with Community interest companies for over 10 years, and know the nuances and issues that can impact you and your staff.
More than just employment status advisors, we’ve worked with Community interest companies for over 10 years and know the nuances and issues that can impact you and your staff.
Hiring payroll providers can not only save big money but optimize your operations as well. Spend less time bean counting and more time focusing on growing your business!
If you would like advice and assistance ensuring that all payments to directors are perfectly legal, KG Accountants payroll service is the best answer.
We guarantee that every payment is in accordance with all contracts and laws.
Visit us at KG Accountants to learn more about our services. Let our team make your life easier.