Tax efficient salary for 2015/16

[TykeMerc]

True, as said it feels unwise to issue dividends in a salary type manner, it just invites hassle from HMRC. I tend to issue a big one at the end of the tax year, in fact I've just paid it.

Next tax year I'm probably going with the £10,600 salary as the accountants have explained.

[JB3000]

Indeed, a 'real' company after all would issue a dividend perhaps annually, or not at all. Monthly sounds a bit like a salary, which....

The above post is missing the point completely.

Monthly dividends from distributable profits from a contract outside of IR35 are perfectly legitimate. UK tax law doesn't stipulate how often dividends can or can't be paid.

An annual dividend from distributable profits from a contract inside IR35 would not be let off the hook by HMRC just because they are paid on an annual basis.

The point is IR35 not the frequency of dividend payments.

[JB3000]

A Director paying a salary of £10,600 (and on the correct tax code) would not need to make quarterly payments - There would only be one payment due which would fall in the final quarter. This is a small price to pay for the additional saving in our opinion.

Nixon Williams 1 - Broome Accountancy 0 ; Full time

[Sausage Surprise]

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

I'm with Crunch..what is this additional fee you speak of?

[TheCyclingProgrammer]

Yes, I will make separate payments for salary and dividends.

Might do this quarterly though. Apparently there is no need to do it on a monthly basis, as I initially thought.

I started off paying dividends on an ad-hoc basis as and when I needed them; I probably didn't make full use of my basic rate tax threshold in the first few years but I was trying to keep withdrawals to a minimum and build up retained profit in the company.

I moved to paying dividends quarterly, a nice round figure (£7500) and the last one of the year slightly higher to use up any remaining basic rate band. Less paperwork than monthly but still manageable.

[Olly]

Yes, you do. There isn't a one size fits all approach.
...snip..

For 2014-15, optimum salary would typically be £10k minus the grossed up savings account interest (assuming no personal pension contributions, charity donations, or anything else that effectively acts to increase the personal allowance). Say the savings account interest was £400 net. interest, optimum salary would be £9.5k and at self-assessment you'd get a refund of £100.

...snip...

Any salary you don't take attracts 20% corporation tax though.
I've always gone down the line of taking a salary up to the NI threshold and taking the 20% hit on bank interest etc personally rather than through corp tax.

I'm of course careful to tot up personal bank interest when taking a dividend to make sure I don't stray into the 40% bracket.
As you say, there isn't a one size fits all approach but if the aim is to stay out of the 40% bracket then either "I'm doing it wrong" or I don't

[jamesbrown]

Any salary you don't take attracts 20% corporation tax though.
I've always gone down the line of taking a salary up to the NI threshold and taking the 20% hit on bank interest etc personally rather than through corp tax.

I'm of course careful to tot up personal bank interest when taking a dividend to make sure I don't stray into the 40% bracket.
As you say, there isn't a one size fits all approach but if the aim is to stay out of the 40% bracket then either "I'm doing it wrong" or I don't

Remember there's a 10% savings rate (moving to 0% from April 6), so you're unlikely to pay (much) interest on savings income if you're paying a salary around your personal allowance.

[Contreras]

For 2014-15, optimum salary would typically be £10k minus the grossed up savings account interest (assuming no personal pension contributions, charity donations, or anything else that effectively acts to increase the personal allowance). Say the savings account interest was £400 net. interest, optimum salary would be £9.5k and at self-assessment you'd get a refund of £100.

Any salary you don't take attracts 20% corporation tax though.

Yes it does but this is cancelled by the same amount refunded via SA. The benefit is in saving 12% NI on the difference (£60 in the above example), for virtually no effort.

I've always gone down the line of taking a salary up to the NI threshold and taking the 20% hit on bank interest etc personally rather than through corp tax.

If you only take salary up to the NI threshold then this is for convenience. Overall tax will be higher compared to paying salary up to the full allowance.

[Smartie]

I'm with Crunch..what is this additional fee you speak of?

Extra £140 for running employee payroll - it was waived last year but will be charged this year. It's included in the 'plus' package.
Pricing - Crunch

This is the recommendation from them "I have been looking in to this in more detail and due to the the changes in the bands this year it is not more tax efficient to take more than £8060."

[jamesbrown]

Extra £140 for running employee payroll - it was waived last year but will be charged this year. It's included in the 'plus' package.
Pricing - Crunch

This is the recommendation from them "I have been looking in to this in more detail and due to the the changes in the bands this year it is not more tax efficient to take more than £8060."

Well, they're wrong, assuming you have a normal tax code and YourCo is eligible for the Employment Allowance. I have no direct experience of Crunch but, generally speaking, you get what you pay for, and I think that's mainly software with Crunch(?)