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

[WordIsBond]

You can't backdate a company secretary appointment. It is supposed to be reported to Companies House within 14 days. So you can't pay her as a secretary for prior months.

You probably can pay her as a personal assistant for some of those prior months and appoint her as secretary now.

Or, you MAY be able to appoint her as secretary now and pay her an annual salary (permissible for directors, probably for secretaries, but I don't know).

You should not pay her anything for time when she wasn't acting as a personal assistant.

And you may fall foul of the AE thing if you try to pay her as a personal assistant (rather than a secretary). I am totally guessing, but I would guess you are fine on this count if you are still before your staging date.

If it were me in your case and I wanted to go the company secretary route (which is what it sounds like you've decided), I'd do this:

1. have a board meeting now and appoint her as company secretary, and notify CH.
2. Find out if you can pay a company secretary on an annual basis, like directors.

A. If you can do annual basis, do that. Sorted. Pay her £8K or £10.6K or whatever you've decided on an annual basis and have done with it.

B. 1. If you can't, pay her monthly, once before 5 March and again before 5 April, for her secretary role.
B. 2. Consider paying her using mistimed payments for her P.A. role from prior months. You would pay only for those months where she actually did work, and you would pay only an amount that actually makes sense for the work done. Be generous with it but not silly. But you don't want to do this if it is going to fall foul of the pension AE stuff, and finding out the answer to that might be a pain. And if it were me, I'd probably not bother, because it really won't gain THAT much.

[dagenheis]

And you may fall foul of the AE thing if you try to pay her as a personal assistant (rather than a secretary). I am totally guessing, but I would guess you are fine on this count if you are still before your staging date.

If it were me in your case and I wanted to go the company secretary route (which is what it sounds like you've decided), I'd do this:

1. have a board meeting now and appoint her as company secretary, and notify CH.
2. Find out if you can pay a company secretary on an annual basis, like directors.

A. If you can do annual basis, do that. Sorted. Pay her £8K or £10.6K or whatever you've decided on an annual basis and have done with it.

B. 1. If you can't, pay her monthly, once before 5 March and again before 5 April, for her secretary role.
B. 2. Consider paying her using mistimed payments for her P.A. role from prior months. You would pay only for those months where she actually did work, and you would pay only an amount that actually makes sense for the work done. Be generous with it but not silly. But you don't want to do this if it is going to fall foul of the pension AE stuff, and finding out the answer to that might be a pain. And if it were me, I'd probably not bother, because it really won't gain THAT much.

Just to share an update on this and hoping others can chime in:

I spoke to the TPR helpline earlier this week. They have confirmed:

1. If there is one director plus CS and none of them have contract of employment, then there are no employer duties for auto-enrollment. That's what we expected.

2. But, the customer advisor also indicated that the employer can stay exempted of AE duties if its one director and someone else (other than director/CS) with no contract of employment as the second person is not considered as 'Worker' i.e. Ltd can stay exempted even if the spouse/partner is paid for admin duties without being director/CS.

As a reference the helpline referred to the Detailed Guidance which includes definition of 'Worker'. His assertion was based on the fundamental point that there is no contract of employment. Hence, there are no AE duties as an employer. He reconfirmed this.

I have see some reference to this 'Worker' principle in another post from last year but nothing recent. But if i go by the helpline response then we don't need to make spouse director/CS.

Has anyone else come across this before?

It's almost new Tax year so I guess there should already be concrete advice on TPR AE and Employment allowance in 2016-17.


Here is the link to the detailed guidance:
New pension rules, guidance, resources, auto enrolment | The Pensions Regulator

[Alan @ BroomeAffinity]

Surely if there's no written contract then there's an implied contract? I think the PR adviser has got this wrong.

[WordIsBond]

It's almost new Tax year so I guess there should already be concrete advice on TPR AE and Employment allowance in 2016-17.

Employment Allowance legislation
That is now enacted, so that is its final form until the Chancer tinkers with it again.

“Excluded companies
(4A) A body corporate (“C”) cannot qualify for an employment allowance for a tax year if—

(a)all the payments of earnings in relation to which C is the secondary contributor in that year are paid to, or for the benefit of, the same employed earner, and

(b)when each of those payments is made, that employed earner is a director of C.”.

So, you can't claim the Employment Allowance if there is only one employee being paid a salary and that employee is a director. Two directors doesn't solve it, there must be two people taking salaries. The second person may or may not be a director.

So:
If you just make your spouse a director/company secretary but don't pay a salary, you can't claim EA.
If you don't make your spouse an officer but do pay a salary, you can claim EA, but it has to be a justifiable business expense -- wholly and exclusively and all that.
If you both make your spouse an officer and pay a salary, you can claim EA, but again it has to be justifiable business expense.

I think this means if your spouse has other employment, this is not worth it. The salary paid would be fully taxable income. It only makes sense if your spouse has less than £11K employment income outside YourCo.

Perhaps one of our accountant members can clarify the following, though. If the second salary is £8K or less, there are no "secondary contributions" (employer's NI). In that case, are there any "earnings in relation to which C is the secondary contributor"? I think not, but am not an expert. If I am correct, giving a spouse a salary of less than £8K would NOT restore eligibility for EA, the spouse's salary would have to be over £8K. If it can be justified, the optimum, of course, would be £11K unless the spouse has other income.

[SueEllen]

Surely if there's no written contract then there's an implied contract? I think the PR adviser has got this wrong.

There is an implied contract but it's unlikely your spouse is going to take you to an employment tribunal or to court over their employment rights.

Personally I would just make the spouse company secretary that way if TPR changes their opinion, which they can, you aren't in a mess.

[cojak]

Have you considered a SSAS? You can draw out up to £40k tax-free into a SSAS and then use that amount to acquire a commercial property.

Small Self-Administered Schemes? There's another EBT-type tax disaster if ever I heard one. Why haven't these been mentioned on these boards before now I wonder?

Stick with SIPPs - it's a tried and trusted method of staying on the right side of HMRC.

[SueEllen]

Have you considered a SSAS? You can draw out up to £40k tax-free into a SSAS and then use that amount to acquire a commercial property.

And if one of your clients happens to be like these people you can lose some of your investment linky and linky

[dagenheis]

There is an implied contract but it's unlikely your spouse is going to take you to an employment tribunal or to court over their employment rights.

Personally I would just make the spouse company secretary that way if TPR changes their opinion, which they can, you aren't in a mess.

Yeah, CS route seems to be more credible (and safer) option. Talking to couple of other contractor folks, their accountants' advice is to nominate spouse as director, which option is clearly listed on TPR website/emails anyway.

So ltd (with 1 director and 1 CS) on payroll, EA can still be used in 2016/17 which is same for 1 director + 1 employee.

Only (flip side) is that the CS is paid 'fees' for their services as an office holder rather than 'salary' for some of the PA duties. The latter provides better justification for salary circa 8k. It will be good to have thoughts on recommended salary level for CS?

[foxes1884]

Here's a useful quick and dirty calc, works for single directors.


2016-17 - Dividend tax increase calculator

F.

[PerfectStorm]

It's really annoying me how there's no tax free amount to take other than the difference between your salary and 11k, and the £5000.

So most of us will be withdrawing £7940 on day 1 and then just taking stuff as and when needed?