Tax efficient salary for 2015/16

[Maslins]

But I thought you wouldn't incur any PAYE if the new allowance is £10.6k? Is it purely NICs that complicate the situation?

I do tend to prefer the "easy" options but at the same time, +£200 per month in tax free salary is not nothing...

You wouldn't incur any PAYE (assuming you have a normal tax code) but you would incur employEE's NICs. The key thing that's changed ~12 months ago is the introduction of the employment allowance, basically means your typical contractor director on a salary slightly above the NIC threshold only suffers employEE's NICs, rather than employER's NICs as well...this is why there's a bit of a divide as to what's best.

Up to £671/month, no PAYE or NICs,
£671-883/month, no PAYE, no employER NICs (assuming there aren't other employees complicating things) but there is employEE NICs to deduct and pay over,
Over £883/month both PAYE and employEE NICs.

You don't save £200/month, it's far less than that. Yes you take that much more in salary, but that extra salary is pushing you closer to the higher rate tax bracket, so chances are more of your dividends will suffer higher rate tax (or if you like to stay just below you can take less divis tax free)...plus there's the employEE's NICs you suffer.

[Willapp]

Okay that makes a lot more sense, cheers for the very concise summary of the previous 60 posts!

[jamesbrown]

Again, it's important to emphasise that the hassle of making a single PAYE payment in Q4 is absolutely minimal. If you have an accountant (and you should have), this amounts to no more effort that logging into your online banking and making a single payment to HMRC at year end. That minimal effort will save around 200 quid in total, not per month (i.e. using the Employment Allowance and paying up to the personal allowance). I am talking about the baseline case (1060L taxcode etc.). YMMV.

[7specialgems]

Again, it's important to emphasise that the hassle of making a single PAYE payment in Q4 is absolutely minimal. If you have an accountant (and you should have), this amounts to no more effort that logging into your online banking and making a single payment to HMRC at year end. That minimal effort will save around 200 quid in total, not per month (i.e. using the Employment Allowance and paying up to the personal allowance). I am talking about the baseline case (1060L taxcode etc.). YMMV.

If the full allowance salary attracts £340.80 of EmployEE NI per year and payments on account are due quarterly on accruals reported via FPS monthly, how is it that there is a single Q4 payment of £340.80 and not four payments of £85.20?

[TheCyclingProgrammer]

If the full allowance salary attracts £340.80 of EmployEE NI per year and payments on account are due quarterly on accruals reported via FPS monthly, how is it that there is a single Q4 payment of £340.80 and not four payments of £85.20?

Director's NI is calculated differently.

[7specialgems]

Director's NI is calculated differently.

Thanks for putting me onto this. Yet again I have been misinformed by my accountant. I had been paying my dues quarterly and wondered why my online account with HMRC was showing such a large surplus!

[Maslins]

Again, it's important to emphasise that the hassle of making a single PAYE payment in Q4 is absolutely minimal. If you have an accountant (and you should have), this amounts to no more effort that logging into your online banking and making a single payment to HMRC at year end. That minimal effort will save around 200 quid in total, not per month (i.e. using the Employment Allowance and paying up to the personal allowance). I am talking about the baseline case (1060L taxcode etc.). YMMV.

What you say is correct...and I'm not really arguing with you, but some clients will see it from a different perspective.

Eg they set up a monthly standing order for their salary, £883...all fine, but then they end up with a director loan at the end as they didn't tweak it downwards. They've also got to pay the deductions over...is it to the CT office with their UTR, or the VAT office with VAT number...perhaps as it's a deduction from salary it goes to the personal tax dept? No, an entirely different place, with a reference they won't use for anything else.

So yes, I agree it's not hard, but it is an extra faff that can easily be completely avoided. Depends on how comfortable you are with admin/how well you understand your tax affairs, and if you're not particularly hot on that stuff, how you value your time vs cash.

[jamesbrown]

What you say is correct...and I'm not really arguing with you, but some clients will see it from a different perspective.

Eg they set up a monthly standing order for their salary, £883...all fine, but then they end up with a director loan at the end as they didn't tweak it downwards. They've also got to pay the deductions over...is it to the CT office with their UTR, or the VAT office with VAT number...perhaps as it's a deduction from salary it goes to the personal tax dept? No, an entirely different place, with a reference they won't use for anything else.

So yes, I agree it's not hard, but it is an extra faff that can easily be completely avoided. Depends on how comfortable you are with admin/how well you understand your tax affairs, and if you're not particularly hot on that stuff, how you value your time vs cash.

Certainly, you may want to put yourself in the position of a less well-informed client. However, I think your points are better directed towards the services being provided by the accountant (and this isn't directed at you, I'm just making a general counterpoint). Most accountants - and I can certainly speak for mine - should be able to provide simple payment instructions with the appropriate reference number at the appropriate time. It literally requires less than 5 minutes of my time.

[AnotherGuy]

Thanks for putting me onto this. Yet again I have been misinformed by my accountant. I had been paying my dues quarterly and wondered why my online account with HMRC was showing such a large surplus!

Related to this, do you guys have access to HMRC online accounts?

I think my accountant has control over this, and created all the online accounts (VAT and enverything) meaning I don't know the credentials. Not sure if I should be concerned about this, might be a common thing but I'd like to have control

[PerfectStorm]

Certainly, you may want to put yourself in the position of a less well-informed client. However, I think your points are better directed towards the services being provided by the accountant (and this isn't directed at you, I'm just making a general counterpoint). Most accountants - and I can certainly speak for mine - should be able to provide simple payment instructions with the appropriate reference number at the appropriate time. It literally requires less than 5 minutes of my time.

This has been my experience. Nixon Williams say how much to pay and I pay it. Once it's been done once I can do it again - changing amounts and references - with an iPhone app taking about 20 seconds per transaction. But I can understand some people not wanting to have anything to do with it.