Best Tax Efficient Way To Stay Under The Higher Tax Band In 2016/2017

[northernladuk]

To turn the question back the other way, if it didn't make sense to make your spouse a director before, is it worth it to do it now to gain £237?

You might be underestimating the greed or stupidity of some people. Erikur is changing his shareholding by 9% to make the most of upcoming changes. I don't think it's a safe assumption that no one would don't for 237 quid. I mean.. Thats over three weeks JSA!!!

[WordIsBond]

Right so a summary of this (in my guesstimate)

EA is only allowed with two salaried people (not just Husband and Wife), can both be directors, but both people need to be able to justify their salary.

As noted above, there need be no salary for both. As stated in the budget statement and until amended, two directors, or a director and an employee who is not the director, means the company retains eligibility.

a 50/50 equity split between Husband and Wife is fair game, sharing of assets etc.

Yes. Arctic Systems case, and also centuries of tradition/justice.

If the decision on EA goes south, the optimal salary is £8060 (ignoring the extra £52 where you pay less NI than Corp tax), if not the optimal salary is £11,000 but you would find it hard to justify paying someone £11k for office admin probably won't cut it.

Pretty much. But you can pay for both office admin and a director's stipend if your spouse is a director, which increases the justifiable amount. As far as I know HMRC has never challenged a director's remuneration at that level.

I suppose that begs the question, what would be an appropriate salary for office admin?

Going on an average PA rate of £10 an hour, 1 day a week would be £4-5k a year?

Easy to justify a premium because you might have to pay higher to get someone to only do it part time. Pretty hard for a one-man band to claim he has a day a week of office admin, though. But if you can justify £4K a year for office admin, and she's a director as well, you can easily justify £4-5K a year director's stipend. Sorted.

[WordIsBond]

You might be underestimating the greed or stupidity of some people. Erikur is changing his shareholding by 9% to make the most of upcoming changes. I don't think it's a safe assumption that no one would don't for 237 quid. I mean.. Thats over three weeks JSA!!!

LOL. Who on this thread would be thinking about JSA?

I suspect his change has more to do with the div tax than employment allowance, and the impact (depending on his circumstances) could be a lot more than £237.

I've read (don't know if it is true) that frequent shareholding changes are a red flag for HMRC. If they were smart, it would be, but they've done a lot to convince me that they aren't always smart. But companies have changes in their share allocation all the time for various reasons. Maybe she cooked him a really good dinner last night so he felt generous and gave her more shares. The possibilities are endless, but I won't get more detailed.

I'm sure if you changed your shareholding every year it would be a red flag. But it would be very hard for them to prove you did something wrong if you change the percentages occasionally. There's a lot of FUD around this. But Arctic Systems still stands and as long as the shares have equal rights it is going to be very hard for HMRC to challenge an occasional gift between spouses. And there would probably have to be a lot of money involved for them to think it worth trying.

[northernladuk]

LOL. Who on this thread would be thinking about JSA?

I suspect his change has more to do with the div tax than employment allowance, and the impact (depending on his circumstances) could be a lot more than £237.

I've read (don't know if it is true) that frequent shareholding changes are a red flag for HMRC. If they were smart, it would be, but they've done a lot to convince me that they aren't always smart. But companies have changes in their share allocation all the time for various reasons. Maybe she cooked him a really good dinner last night so he felt generous and gave her more shares. The possibilities are endless, but I won't get more detailed.

I'm sure if you changed your shareholding every year it would be a red flag. But it would be very hard for them to prove you did something wrong if you change the percentages occasionally. There's a lot of FUD around this. But Arctic Systems still stands and as long as the shares have equal rights it is going to be very hard for HMRC to challenge an occasional gift between spouses. And there would probably have to be a lot of money involved for them to think it worth trying.

Yep to all that. If you know exactly what you are doing and understand as well as accept the risk then people can do what they want. What I don't like is when newbies who are ticking boxes blindly change it because it brings them an extra bit of cash without understanding all the implications. Advice to them would be to do not do it, but not because it's illegal, but because they don't know what or why they are doing and focus only outcome.. which, to be fair, would be exactly the reason HMRC would be interested in them. People abusing it will make it more risky for those that have a genuine business reason to do so.

[psychocandy]

That is £237 quid in your pocket rather than feeding/housing the poor, I know what most contractors will do.

Probably. Yet I get grief for claiming JSA sometimes....

[psychocandy]

Right so a summary of this (in my guesstimate)

EA is only allowed with two salaried people (not just Husband and Wife), can both be directors, but both people need to be able to justify their salary.

a 50/50 equity split between Husband and Wife is fair game, sharing of assets etc.

If the decision on EA goes south, the optimal salary is £8060 (ignoring the extra £52 where you pay less NI than Corp tax), if not the optimal salary is £11,000 but you would find it hard to justify paying someone £11k for office admin probably won't cut it.

I suppose that begs the question, what would be an appropriate salary for office admin?

Going on an average PA rate of £10 an hour, 1 day a week would be £4-5k a year?

Where does it say the 2nd salaried person can't be the mrs? If mrs is a director why can't you also pay her a 'salary' of £1000 a year say?

[SimonMac]

Where does it say the 2nd salaried person can't be the mrs? If mrs is a director why can't you also pay her a 'salary' of £1000 a year say?

I said not just.... rather than just nit..., I was saying it doesn't just have to be husband and wife.

[WordIsBond]

Probably. Yet I get grief for claiming JSA sometimes....

We can be more consistent and change that sometimes to "always" if it helps.

[dagenheis]

Considering salary in 2016/17: 8060 for myself as a director and 8060 for spouse (non-director shareholder -- salary is not just for admin but there is reasonable basis to pay this salary.

Question: Can the ltd stay opted-out of Pensions AE in 2016 as long as the salary for second employee (shareholder) will be less than 10k?

also, another question: do you see any issue in making a one-off lump sump salary payment to spouse at the end of the year rather than making payments & submitting RTI in the first 10/11 months. The accountant finds no issue with this provided that RTI is submitted correctly in the last month at the time of payment (apparently it's usual) But I am not sure if its a suitable approach.
Any take on this please?

Cheers,

[Contreras]

also, another question: do you see any issue in making a one-off lump sump salary payment to spouse at the end of the year rather than making payments & submitting RTI in the first 10/11 months. The accountant finds no issue with this provided that RTI is submitted correctly in the last month at the time of payment (apparently it's usual) But I am not sure if its a suitable approach.
Any take on this please?

Paying salary as an annual lump-sum isn't a problem. The issue is with when you do the RTI submission(s). The options are:

1. Inform HMRC that your company will use an "annual scheme" for salary, with annual submissions (you must also specify the month it will happen). This must be for all employees.
2. Submit RTI monthly, with nil amounts for those employee(s) on annual salary.
3. Submit RTI monthly with notional amounts and hold it in a loan account to be paid as a lump sum whenever.
4. Compromise: As for 1) but use a quarterly scheme, again must be for all employees.