How Much Should You Pay Yourself As A Business Owner

A common question we get asked is what can be considered a tax efficient amount to pay yourself as a business owner. With many costs to account for, knowing how much to take from a company can be difficult, but the reality is that a salary is essential for many. If your business planning has led to this point, this article will help answer this question.

At Hysons Chartered Accountants, one area we specialise in is business start-ups, including setting the right foundations for understanding when money can be taken from a profitable company. Keep reading to learn what percentage of this can be assigned to the salary of a business owner.

When Should a Business Owner Start Taking a Salary?

Choosing the right timing is essential before considering how much you can pay yourself as a business owner. This should only be considered when a business makes a consistent profit and all operating expenses, tax/debt liabilities are accounted for. If a business isn’t profitable, it is not generating enough revenue to cover its expenses. It’s important to closely monitor the financial health of your business and make adjustments as necessary to ensure its long-term viability.

How Much Should a Business Owner Pay Themselves?

The amount that a business owner chooses for themselves is, of course, a personal decision. However, you should follow the structure recommended here as it gives a business the best chance of thriving in the long run.

We have already confirmed that a salary should only be taken when a business is profitable. Therefore, the amount you choose to take back out should be taken from the net income. You should also ensure you leave a good amount to cover taxes, usually around 30%, and enough to pay for business expenses and accrue equity, around 20-30%. This means that business owners can take around 40-50% of their profit back as a salary if they wish. Depending on your ownership structure you may also wish to take part salary and part dividends. Of course, the more money you choose to take out, the longer it will take to accrue more positive equity again, so it’s best to work with an accounting professional to understand what a healthy percentage would be in line with strategic goals and planning.

What Are The Benefits Of Efficiently Managing A Business Owner’s Salary?

There are many benefits to following professional advice when it comes to assessing a business owner’s salary, which include the following:

• A healthier cash flow within a business is maintained, which reduces risks and enhances growth opportunities.
• Business owners remain motivated as they are being fairly remunerated.
• Enhanced tax efficiency from both a personal and corporation tax perspective, which means more money can be offset against profits.
• robust accounting records in the case of an investigation from HMRC.
• As profits rise, so can a salary, meaning hard-working business owners can always receive a healthy and accurate ROI.

Chose Hysons for Business Expense Management

Now you should have a better idea of how a business owner can take a salary from a successful company. The best way to manage this so that tax efficiency can always be achieved is by receiving support from an accounting professional.

To learn more about our bookkeeping and accounting services, please do contact our team.