LTD Company salary

[PoH]

I may accept a permanent job in the near future, but the dates or remuneration are not known at this point in time. Accountant has suggested to keep the LTD company salary for this tax year to be at the LEL (for state pension eligibility) and then do a recalculation for the month prior to perm job commencement to find the most tax efficient final month LTD company salary, which will be a larger final amount.

Accountant has informed that me being a director can decide the salary, but the question is - Any chance of being in any naughty lists if I have the same salary for say 5 months and then a huge increase for the 6th month ?

[kcwnco]

As a director you can decide your salary and you will not be any naughty list.

[northernladuk]

Nope. Could be because you've paid yourself a bonus or your company finally decided to pay the director what he's worth etc so won't be a problem..

Does sound odd though. Wouldn't it be more efficient to not pay a salary and drip feed the dividends out over however long you need to get it all out? Or stick it in a pension so pay no tax on it?

I assume you accountant is doing it right has he's taken in to account things we don't know about.

[simes]

I assume you accountant is doing it right has he's taken in to account things we don't know about.

Really sir. You charge all over others' spelling and grammar. The very least we could ask of you is to lead first by example.

3/10. Could do better.

[craigy1874]

I may accept a permanent job in the near future, but the dates or remuneration are not known at this point in time. Accountant has suggested to keep the LTD company salary for this tax year to be at the LEL (for state pension eligibility) and then do a recalculation for the month prior to perm job commencement to find the most tax efficient final month LTD company salary, which will be a larger final amount.

Accountant has informed that me being a director can decide the salary, but the question is - Any chance of being in any naughty lists if I have the same salary for say 5 months and then a huge increase for the 6th month ?

I think this is a weird way of doing it. Obviously there are a lot of unknowns but no salary and looking at dividends/capital distribution would be my advice.

[PoH]

1. no salary means losing eligibility for those months for state pension as income is below LEL
2. Not eligible for tax free childcare if not earning £126pw (not able to find anything on how it works with one off dividend declarations)
3. Would like to utilise as much of the C1 NI threshold as possible - as that is more tax efficient that declaring the same amount in dividends.
4. No surety about how much the permie salary will be, rental income is involved, so want to keep dividend declarations to the minimum to avoid a big chunk of dividends being taxed at higher rate.

So the tradeoff seems to be to take a salary at the LEL for the time being and reassess the situation if/when a permie job materialises.

[WTFH]

If you don't actually have a perm job accepted, then stick to your current salary & dividends. There's no point in coming up with a "what if" scenario, as the figures will change depending on the timing of you accepting and starting a non-existent job

[WordIsBond]

1. no salary means losing eligibility for those months for state pension as income is below LEL
2. Not eligible for tax free childcare if not earning £126pw (not able to find anything on how it works with one off dividend declarations)
3. Would like to utilise as much of the C1 NI threshold as possible - as that is more tax efficient that declaring the same amount in dividends.
4. No surety about how much the permie salary will be, rental income is involved, so want to keep dividend declarations to the minimum to avoid a big chunk of dividends being taxed at higher rate.

So the tradeoff seems to be to take a salary at the LEL for the time being and reassess the situation if/when a permie job materialises.

Re: #1, director salary is allocated evenly across the months for NI purposes, is it not? So I think your point #1 is invalid. I think you can wait and pay yourself salary when you know more and it will be spread evenly. You might challenge your accountant on this point.

Re: #2, I don't know about the tax free childcare (my kids are more likely to be caring for me than the converse ). But the LEL is £118 / week so if you are right about the £126 and care about that, you need to go above LEL. Again you should check with your accountant.

Re: #3, if you want to utilise as much NI threshold as possible, you should go to £166 / week. Again, you should check with your accountant.

Re: #4, this makes perfect sense to me, and I wouldn't be bringing forward signficant dividends until you know more. The exception would be, obviously, if you need the funds. But remember you have a £2K dividend allowance, so unless you have other dividend income you can take that much without an issue.

Finally, remember that taking low salary now is tax-efficient for NI and corporation tax, but you will pay income tax on it if you do start the perm job. That will be at 20% (which is still tax efficient) unless your new job takes you into the higher rate band, in which case, it will be at 40% and won't be particularly tax efficient. Something to consider.