Network Marketers are their own bosses. The vast majority are self-employed and operate either as a sole trader or partnership. And that is part of the appeal of having your own MLM business – the freedom to run your business as you see fit, within the hours that suit you, without having to report to anyone else. On the flipside of the coin that means that you don’t have a steady, regular salary as you would in traditional employment.
Our previous blog How do you make money in Network Marketing? looks at the two income streams that Network Marketers have.
But how do you know how much to actually pay yourself?
You are your own business, so you can pay yourself as you see fit once you’ve paid off expenses. You are taxed on the difference between business income and business expenditure. We strongly recommend that you have separate bank accounts for your business and private finances. Bear in mind that the amount you can pay yourself is likely to vary from month to month, depending on sales and commissions. You must ensure that you are putting money aside for any taxes you are liable to pay after having done your self-assessment tax return.
It is also vital to keep a record of how much you pay yourself on a monthly basis, alongside other incomings and outgoings, as part of bookkeeping best practice.
If your Network Marketing business operates as a partnership, you would simply split the profit 50-50 (or whichever way you have agreed to share profits) and pay each partner accordingly. There is an additional type of tax return for partnerships called a Partnership Return. This discloses who the partners are, and how the profits and losses have been divided between them.
In the current tax year, the following tax rates apply to your total income:
- Up to £12,500 – 0%
- £12,500 – £50,000 – 20%
- £50,000 – £150,000 – 40%
- Over £150,000 – 45%
People who are self employed also have to pay 2 types of National Insurance and it’s important to factor this into your calculations when reserving money to pay the tax man:
- Class 2 National Insurance: £3 per week if profits exceed £6,365 per annum
- Class 4 National Insurance: 9% on profits between £8,632 and £50,000 per annum and 2% on anything above £50,000 per annum
What if you have other earnings from employment or dividends?
If you have other earnings you can still pay yourself as outlined above, but you will need to include these on your self-assessment tax return so HMRC can calculate the correct amount of tax.
If you operate through a limited company or limited liability partnership please contact us separately for advice, as different rules apply.