For example if 40 hours are worked at £10 per hour, the total amount invoiced will be £400. The invoice must be written on behalf of the limited company, not the individual, and payment will be made to the company.

This must then be deposited in the Company business account. Access company money as follows:

Dividends
A company can pay dividends to its shareholders which are simply payments from the net profit of the company (after tax). Each shareholder will receive a proportion of the dedicated profit according the number of shares that they own. Dividends are not subject to PAYE taxation but do for part of the individuals income tax return. Therefore no National Insurance will be paid on dividends given to a shareholder.

The value of the dividend is calculated from the net profit of the company and the director must decide how much to pay to its shareholders. If you are the sole shareholder you will receive the entire dividend.

A dividend must be documented correctly with a dividend certificate which should be handed to Inland Revenue on submission of your annual income tax return. Please remember dividends can be paid throughout the year but it must be remembered that these are payments from company profits, and must not be treated like a salary. Thus you will not be able to just add up all of your personal transactions at the end of the year and declare the sum as dividends taken.

Expenses
A company can use business expenses as a taxable deduction. In other words, money spent on company expenses is tax free. The greater the value of the expenses, the less tax you and your company will pay.

An expense is a cost which is necessary for the running of the company. Entertainment and food and drink cannot be used as a company expense. Costs such as rent, bills, travel, courses, tools, equipment, postage, stationary and accountants fees are all some examples of company expenses. Items such as rent are not wholly deductable if they are where you live

The proportion of how much you can claim is determined by the amount of use your company has at your home. There are no set percentages of how much you can claim but it must be justifiable to Inland Revenue.

An accountant will calculate the correct percentages on any indirect company expenses that you have. Never use general percentages because that is what your friend does or it is what you heard on the grapevine. For one thing you could be claiming too little and therefore paying too much tax.

Salaries
Any further monies will be taken as salary. This will be taxed under PAYE and a payroll system must be set up. Tax and National Insurance must be paid either monthly or quarterly according to the rates set down by Inland Revenue.