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I've been self-employed as a sole trader for over a year, but now I want to form a private limited company and trade via that (I'm in IT, and some organisations here won't contract an individual directly due to IR35). I understand that I would effectively be working for the company, so do I create a payroll and give myself a salary? Are there restrictions on how that works? Is it still OK to take different/no payment during "lean" months?

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I usually like to be paid in gum – Frank Oct 29 '10 at 5:03
@Franky then you sell the gum to agitated ex-smokers at a huge markup? – Graham Lee Oct 29 '10 at 9:08
who you calling an ex-smoker? I also like to be paid in Winstons :) – Frank Oct 30 '10 at 2:24
In the usa small business owners are subject to self employment taxes (medicare and social security). So it makes sense to put yourself on payroll for a reasonable and small salary and then give yourself a dividend monthly or yearly for the rest as dividends are taxed more favorably. I had my CPA organize our structure with my needs in mind. I would assume the UK would be similar with some self employment burden that would require payroll. – Frank Oct 30 '10 at 2:26

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You are required to inform HMRC that you will be employing people, even if it's only yourself. The main thing to be aware of is your obligation to withhold income tax and National Insurance under the PAYE system, and to pay employer's National Insurance contributions.

The HMRC website has a lot of information about these topics. I also found this guide (it's slightly out-of-date as there is no 10% tax rate any more and the personal allowance is higher).

As for paying yourself less/nothing, that should be fine. As a company director you are excluded from the National Minimum Wage regulations unless you also have a contract of employment with the company.

One seemingly common approach is to pay yourself a small annual salary that takes advantage of your personal tax allowance (£6,475) and then take the rest in dividends. You may want to consult an accountant to make sure you come up with the most tax-efficient arrangement.

You should probably read through the pages on the HMRC website. Don't pay too much attention to me as I am a novice at this too.

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Thanks for the links, particularly regarding the dividend option. I definitely intend to engage an accountant, but wanted to find out what I could expect and what options I should be aware of. – Graham Lee Oct 27 '10 at 12:26

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