Minimum Salary

[BigPhill]

Claim NMW and then everything on top as dividends this keeps you paying a bit of PAYE and National insurance keeps HMRC happy (ish) and you still make more than being a full time employee. Surely your accountant would have advised you of this.

[Mustang]

Denny, you raise a very good point and pretty much the angle/approach that my accountant is taking. Just frustrating to have to pay such a high salary!! I guess all the others out there have small outgoings and therefore can justify taking NMW.

Surely not everyone still lives at home with no rent/mortgage? I have a fairly high mortgage, wife and and a little nipper! Still - there is more to life than money. Right?!

[ASB]

Denny, you raise a very good point and pretty much the angle/approach that my accountant is taking. Just frustrating to have to pay such a high salary!! I guess all the others out there have small outgoings and therefore can justify taking NMW.

Surely not everyone still lives at home with no rent/mortgage? I have a fairly high mortgage, wife and and a little nipper! Still - there is more to life than money. Right?!

Personally I view that point as irrelevant, although it is a common view and often advised.

I would be interested to know from the accountants where low salary high dividend has been raised as any sort of an issue in an investigation - ultimately that is the only place it counts.

It certainly wasn't an issue in our compliance review some years ago. Also our accountants had previously said they had never had it raised in any of the investigations they had been involed with - but that wasn't very many.

[malvolio]

Looking at the PCG cases I know about, while low salary is not challenged in itself, it is apparent that 90% of the people being chased were on that pattern; although since most of us are, that isn't really a good statistic. So in IR35 terms it is not an issue other than a possible reason for a taxman to take a closer look.

However, in the Arctic S660 case, the point was laboured at some length and never really addressed in the judgement. Clearly there is a school of thought that sees it as suspicious.

[Burdock]

I have a horrible feeling that I will get grilled for asking this...but I am a newbie and very much learning

If it is not illegal to take most of your payment as dividends, what is wrong in proclaiming to the HR (if asked), "I am paying myself most of my money in dividends as it is the most tax efficient method".

If you've done nothing illegal- what is wrong? Apologies if I'm missing the point.

[Maxamus]

Ye well said Burdock.

It seems to me that us contractors have to bend over backwards to impress Gordy!
If we are doing nothing illegal by taking a minimum salary and then the rest as dividends then why do we need to watch our backs?

Its not like as if we are avoiding tax as we still pay the 19% on divis anyway.

And lets not forget we are all contractors. We dont get a pension, we dont get holiday pay or sick pay. We have to pay for our own training needs to keep ourselves competitive in this market SO why do we then have to be careful with how much salary and divi payments we take? Surely its justified that because we dont get given any of the aforementioned (which permies do) and because its justified by these reasons then why is it a problem?
We get paid higher amounts to cover such items and to make a living just like everyone else!

Its all bollox to me!

[XLMonkey]

I have a horrible feeling that I will get grilled for asking this...but I am a newbie and very much learning

If it is not illegal to take most of your payment as dividends, what is wrong in proclaiming to the HR (if asked), "I am paying myself most of my money in dividends as it is the most tax efficient method".

If you've done nothing illegal- what is wrong? Apologies if I'm missing the point.

The problem is that, although you have the right to arrange your (personal) affairs so as to pay as little tax as is legally possible, there is a tiny wee exception to this rule as it relates to limited companies. The tiny wee exception is that if, in the opinion of the courts, the sole purpose of establishing a company was to avoid income tax, then our friends in HMRC are entitled to ignore the existence of the company and treat the company's income as your own.

Things get a bit complicated for us because the HMRC tend to make up their own rules about whether your company is a tax avoidance device (i.e. they assume that it is, and try to force you to prove otherwise), but the courts haven't really issued any definitive guidance. The closest to this they have come is to use concepts like "salary at market rates" and evidence that the company is carrying out conventional trading. But even here, the position is contradictory.

As a result, each individual has to make their own mind up about what to do, based on what they think will attract HMRC's attention, and what they think they can get away with if challenged.

For what its worth, you should bear in mind that throughout the small business sector (contractors, shop owners, garages, franchisees etc) it is conventional to pay the national minimum wage (about 10,640 pa) and then take any resulting profits as a dividend.

[Burdock]

cheers XL, that is an interesting reply. stuff to chew on methinks!

[css_jay99]

Is there any law to prevent you from drawing down dividends only?

I am not sure but if you take drawings out of a Ltd Co, then there is an attributable benefit in kind. Saying that i am sure most people here take money out anyway so i wonder how ther account for it.


This is an Area which I am interested is bcos I have paid myself £1000 per month and witdrawn divs at the end of the year. £1k certainly does not cover all my outgoings !

I myself need to REALLY know if there is a BIK on drawings for Ltd companies.

cheers

css_jay99

[THEPUMA]

There is a lot of misinformed nonsense on this thread. Particularly regarding drawing sufficient in net salary to cover your living expenses. I think we should send the police around to any OAP's we know who deign to pay their household bills via their savings income. Bring back the death penalty for such flagrant abuse of the law, I say.

There is no legislation or case law to prevent you from taking a salary of £97 pw, expenses and dividends for the surplus you need.

In a clean tax year, if you take £5,044 by way of salary and £29,856 by way of dividend you will have no personal tax to pay. Restrict yourself to this if you can afford to and accumulate the rest in the company with a view to making a capital liquidation sometime after 2 years and getting the first £35K per shareholder tax free and the balance at 10%.

I have seen no disagreement from any of the accountants on this board that this is the most tax-efficient strategy and no concrete evidence from anyone that this in any way increases your chance of being investigated.

I would rather set fire to £1,000 than pay myself NMW if I were a contractor (which I'm not).