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When you work for your own company you can decide how much salary to pay yourself, how much to pay into your pension fund, and what proportion of the remaining profits to take as a dividend. The split is important as it will affect the tax and national insurance payable by you and your company. A salary just sufficient to be covered by your personal allowance will be tax free, assuming you have no other income. However, if your company has more than one employee (including directors), a salary of over £10,000 will mean the recipient has to be automatically enrolled in the company's pension scheme, under the auto-enrolment rules. You must pay national insurance contributions (NIC) - click here for current rates. So, for example if the company pays you £10,600, you take home £10,295 after NIC deductions. The company will also pay employer's NIC of £343.34 on that salary. However, most companies are entitled to an employment allowance p.a. to set against NIC due for all the employees. This means the company doesn't pay over employer's NIC until the allowance is used up. Please note: there are rules around this such as there needs to be more than one employee on the payroll so check your eligibility first. You could pay yourself a salary just under the NI threshold so you receive an NI credit towards your state pension, but you don't actually pay any tax or NI. However, at that annual salary level you will be "wasting" some of your tax free personal allowance, unless you have other income to cover it.
Finally, remember your company can make contributions into your pension scheme and get a tax deduction for the cost. From 6 April 2015, if you are aged 55 or more you will be able to draw all funds from that scheme, although 75% of the fund will be taxable in your hands. The implications of drawing funds out of a pension scheme can be complex and irreversible, so you should take advice from a financial adviser registered with the financial conduct authority (FCA) before making any decisions concerning pensions.
If you would like to know more, then please do get in touch directly and we will try to help.