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How should you pay yourself?
Annual income is always a taboo topic when speaking to friends, but it can also feel like a taboo for freelancers! If you are new to contracting and freelancing, one of the most confusing matters you need to confront is how much you should be paying yourself at the end of each month versus how much you should be investing back into your business.
How much are you worth?
It can be incredibly difficult to determine where you draw the line between the money that should stay in your business and the money that is yours to spend at will. In the past, you will have been used to being able to spend all of the money in your account, but now you need to keep your wage and your business income separate.
The number that you ultimately determine as your wage is highly variable, and will depend on a whole host of factors including your official title, your industry and your annual income. A qualified contractor accountant can help you to assess your situation and determine a salary that is suitable.
Tax efficiency
Paying yourself in the most tax efficient way is a challenge which we all want to conquer. Most will advise on taking a small salary with the rest coming in way of dividends. You should consult with your accountant before making any decision as you may have additional income, which will affect these methods.
How should I transfer my pay?
Now that you have determined the amount that you are going to pay yourself on a monthly basis, you may be wondering how to actually transfer your salary so that you can get paid! It is actually quite simple – pay yourself just like you would pay an employee or a vendor – set up your monthly wage as a recurrent payment from your business bank account into your personal bank account.