Tax efficient salary for 2015/16

[jmo21]

Good spreadsheet - but from 6/4/15, a contractor operating through his own ltd company who is not a higher rate taxpayer is overall better off taking £671 pm salary (£8052 pa) and can take up to £30,900 net dividends tax free. This way, no NI, PAYE or income tax (on dividend income) is payable. Taking this amount of salary safeguards the entitlement to state benefits even though you don't pay any NI contribution.

Graeme Bennett ACMA MBA

My accountant recommends a salary of £11,000, need to chin him about this.

Assuming I only pay salary and divvies to the upper tax limit, what is the difference between taking £8052 salary and £11,000?

[TheCyclingProgrammer]

Good spreadsheet - but from 6/4/15, a contractor operating through his own ltd company who is not a higher rate taxpayer is overall better off taking £671 pm salary (£8052 pa) and can take up to £30,900 net dividends tax free. This way, no NI, PAYE or income tax (on dividend income) is payable. Taking this amount of salary safeguards the entitlement to state benefits even though you don't pay any NI contribution.

I would have assumed taking the full tax allowance (£10.6k), as is the case this year, would be the most tax efficient for a single shareholder once you've allowed for the £2k employer NI allowance?

[TheCyclingProgrammer]

Assuming I only pay salary and divvies to the upper tax limit, what is the difference between taking £8052 salary and £11,000?

£11k will reduce your corporation tax bill by an extra £589 but will cost you an additional £80 in income tax and £352 in employee national insurance contributions. It will also reduce your overall take-home by about £12 a month.

You can figure it all out from the spreadsheet.

[TheFaQQer]

Good spreadsheet - but from 6/4/15, a contractor operating through his own ltd company who is not a higher rate taxpayer is overall better off taking £671 pm salary (£8052 pa) and can take up to £30,900 net dividends tax free. This way, no NI, PAYE or income tax (on dividend income) is payable. Taking this amount of salary safeguards the entitlement to state benefits even though you don't pay any NI contribution.

Graeme Bennett ACMA MBA

The benefits of paying £8052 over £10600 will also vary according to whether you are 100% shareholder or not.

Compared with paying £10600, at 100% shareholding, £8052 would give my family £4 a month more; at 80:20 £50 a month more; and at 50:50 nearly £200 a month more.

[Forbes Young]

I would have assumed taking the full tax allowance (£10.6k), as is the case this year, would be the most tax efficient for a single shareholder once you've allowed for the £2k employer NI allowance?

What Ive said takes into consideration 1) that some of the £2k NI Er allowance can be utilised but employee NI is payable on the portion in between £8052 & £10,600 and 2) that the additional salary is allowable for corporation tax too (like you say). There is always a fiddly compromise between what is best with these low salaries when Income tax payable and corporation tax payable are considered in conjunction.

Graeme Bennett ACMA MBA

[ASB]

My accountant recommends a salary of £11,000, need to chin him about this.

Assuming I only pay salary and divvies to the upper tax limit, what is the difference between taking £8052 salary and £11,000?

It is the difference between the total deductions suffered on that (only ni) and the ct which will be suffered. 5.8% About 150 quid.

[TheFaQQer]

I know it's not as tax efficient, but if you pay £833 a month or under, that would take you out of any pension auto-enrolment.

Given the confusion over whether we have to be in or out, I wonder whether it's worth taking that little bit of lower tax-efficiency to get the certainty that it doesn't apply.

[Smartie]

£11k will reduce your corporation tax bill by an extra £589 but will cost you an additional £80 in income tax and £352 in employee national insurance contributions. It will also reduce your overall take-home by about £12 a month.

You can figure it all out from the spreadsheet.

My accountant (Crunch) is recommending £8060 this year. On the calculations above, it looks like I'd be £160 better off taking the higher figure but once I've paid their additional £140 fee for employee payroll it seems that it will be barely worth it

[Alan @ BroomeAffinity]

£8060 is where we are. Clients have the choice of course but in our experience the majority prefer not to have the hassle of paying PAYE/NIC every quarter for the small saving. That said, if they go for the higher salary we process it as part of the service. No additional fees charged. Seems a bit cheeky to do so IMHO.

[jamesbrown]

£8060 is where we are. Clients have the choice of course but in our experience the majority prefer not to have the hassle of paying PAYE/NIC every quarter for the small saving. That said, if they go for the higher salary we process it as part of the service. No additional fees charged. Seems a bit cheeky to do so IMHO.

Assuming your motivation is to benefit from the Employment Allowance, that level of salary would only require a single payment (in Q4), so it's minimal hassle in practice, and for a moderate saving. Agree on the additional fees but IIRC Crunch is a bare bones service (£60 a month perhaps?), so I guess it makes sense in that context.