New accountant suggesting lower salary

[Willapp]

Just switched accountants and for 2017/18 tax year they're suggesting a salary of £8,164 allowing me to take £8,336 in un-taxed dividends. My previous accountant used to recommend I take the full tax free allowance as salary - i.e. £11k for 2016/17.

Just wondered what the difference is and is one better than the other for tax purposes? I know there's usually some variation in what is recommended as the optimal salary as a contractor, so just looking for a consensus really.

[northernladuk]

They've given you a pay cut as it appears you can't search or use google very well

There is a comparison of these two figures in there..

http://jf-financial.co.uk/2017/01/12...vidends-201718

[d000hg]

Do we already have a definitive thread on the options for 2017/18? I ticked whichever box I was recommended which doesn't seem too different to this year, I think it was based on the tax-free allowance rather than an £8xxx figure (InTouch).

But I expect to make a small income from a property let so I wonder about keeping my salary lower. Say if I expected £1500 profit from renting (very cheap house) can I wangle that into my tax-free bracket or is that type of income ALWAYS taxed? I was thinking to 'stack' income salary>rental>dividends so dividends start from the £11k (11.5k?) threshold.

[Maslins]

If you're the only one on the payroll, the lower salary (just below NIC threshold) will be better all round.

If you've got two people on the payroll (eg husband/wife) then there'll be a marginal overall tax benefit to paying the slightly higher salary (personal allowance). Reason being you should qualify for the employment allowance, meaning the first £3k of employer's NICs are basically waived. However, many people with both on the payroll still don't bother, as the benefit isn't huge, and it means you've got the faff of keeping tabs on what employee's NICs need to be deducted from the salary and paid over to HMRC.

[Willapp]

Optimum Directors Salary and Dividends 2017/18 - JF Financial : Online Accountants

This is the updated article for the coming tax year. On that basis it sounds like their advice is correct as you end up with about £400 more cash in your pocket at the expense of slightly higher corp tax. As I'm a single director LTD their first option isn't available to me anyway as I don't qualify for the Employment Allowance.

[d000hg]

That article is already out of date following the changes to tax-free dividend allowance just for anyone who wasn't aware.

edit: FROM 2018, sorry my mistake

[kaiser78]

It depends if you are a single or multiple director ltd company, the £11k limit if single director only, the c£8k if multiple directors.

[Willapp]

It depends if you are a single or multiple director ltd company, the £11k limit if single director only, the c£8k if multiple directors.

Don't you mean the other way around? The linked article suggests that solo directors don't qualify for the EA and therefore should take the lower salary to avoid NI contributions?

[Patrick@Intouch]

Do we already have a definitive thread on the options for 2017/18? I ticked whichever box I was recommended which doesn't seem too different to this year, I think it was based on the tax-free allowance rather than an £8xxx figure (InTouch).

But I expect to make a small income from a property let so I wonder about keeping my salary lower. Say if I expected £1500 profit from renting (very cheap house) can I wangle that into my tax-free bracket or is that type of income ALWAYS taxed? I was thinking to 'stack' income salary>rental>dividends so dividends start from the £11k (11.5k?) threshold.

As mentioned by several posters already a company paying a director only would be best advised to look at a salary of £8,164 for the 2017/18 tax year.

This level of salary is efficient as there are no income tax or national insurance deductions but also because the company would not incur employers NI liability.

Employment allowance is not available to such employers and so this would need to be a consideration.

If you took a salary of £8,164 and had rental income of £1,500 then your rental income would be offset against your remaining personal allowance leaving approximately £1,836 of this allowance to be taken as dividend income.

In addition to this you would also be able to take £5,000 of dividends tax free in the 2017/18 tax year. The allowance drops to £2,000 from April 2018.

In this way you would be able to take £16,500 of income tax free during the 2017/18 tax year.

[d000hg]

Cheers Patrick, and for spotting my mistake re: Dividend allowance