How Can I Pay Myself From My Business?
There are a couple of ways to pay owners of a business and to account for the income tax on these.
The most common way is the owner taking drawings – drawings are withdrawals from the business for personal use.
The alternative is wages – the owner will become an employee of the business and PAYE will be deducted each payday like any other employment arrangement. Please note this option isn’t available if you’re a soletrader as you can’t be an employee of yourself!
If you take drawings out of the profits the business is making you will need to put some money aside to account for the tax payable on this. Depending on your level of earnings this can range from around 10% to 33%. For example say you are drawing $2000 a month from your business – you should be saving around 15% of this for income tax. You don’t pass this over to IRD each month (unless you wanted to setup a voluntary automatic payment which is helpful on cashflow sometimes) it is paid to IRD in lump sums so can be quite a bit when added together over several months.
If you become an employee the PAYE that is deducted from your wages each week/fortnight/month is paid by your business to the IRD on the 20th of the following month. The tax is taken care of/paid on a more regular basis.
However please be aware that if your business makes extra profits annually over and above these there will be extra income tax payable.