Minimum Salary

[shoes]

To keep my bus legit' I intend to increment my salary upward depending on my turnover forecast for the year based on a three year average from starting the business (the term usually employed by moneylenders when offering loans - so I would guess that is a good time period to average out turnover and profits). At the very least, I will upping my salary to account for inflation if it looks like my turnover will not change or the business turns over less due to a downturn in the market with more gaps between contracts or fees are lowered.

Therefore, my salary will always be (minimum) 'what my outgoings are + inflation rises' (pegged to three years from starting the business) + (maximum) linked to projected turnover and profits from starting the business in the fourth year of trading.

That way I will be able to calculate a projected profit and loss account against genuine profit and loss (well, my accountant will) which will inform my company strategy on what I should invest to grow the business.

Jeezus, I hope you get investigated Denny to make all this faffing about worthwhile. I mean this in the nicest possible way!

I really can't be bothered with spending more than 5 minutes thinking about the tax investigation possibilities of the way I am operating, Im a consultant, I am too busy consulting. Plus I find it really very dull. If I get investigated Im going to be paying some back. Fair enough then, come get it gordo. I think I'd actually prefer to pay the fine plus interest in the unlikely event of an investigation than spend a lot of time fearfully preparing myself for something that probably won't happen. Life's too short.

[Maxamus]

well i've lowered my salary from minimum wage to £5,800.

If HMRC got a problem with that then they can investigate me all they like because im doing nothing illegal!

The money i save by lowering my salary pays the accountants bill at the end of the year and a bit left over for an escort which will be another business expense because im treating my boss to a threesome!

Livin la vida loca!

Gordo can go screw himself the fat ****!

[meridian]

Christ, get off your high horse, Denny.

Just because you spend every minute outside work examining the minutae of how much salary and dividends you pay yourself, doesn't mean that your business model is any better or worse than anybody elses. Many successful businesses (outside of IT contractors) leave all of that to the accountants, so why should our model be any different?

Oh, I forgot, it's because you say that only real businesses increment salary and dividends..... Yeah, right. Hello, real world, are you out there?

[Lockhouse]

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%.

How often can I do this - can I do it with two companies either at the same time or one after another?

[THEPUMA]

The concession enabling you to benefit from capital treatment only applies on cessation of trade. Therefore if you were to close down one company and set up a new one, HMRC could argue that the trade never ceased and consequently they could charge tax on the distribution at 25% as though it were a dividend.

Anecdotally, I know of only one case where that was considered, and in that case no new company was set up so there was no problem.

I think closing down a company every 2 years would be very provocative and would eventually end in tears.

My advice would be to take any natural opportunity to liquidate (eg reasonable gap between contracts, change in nature of consultancy, concern over potential negligence claim, etc).

[Lockhouse]

That's interesting as I'm retiring in 5-6 years. So if there's 200K in the company and I played the capital redistribution card would I have to pay personal tax on top of the 10% when it took me flying through the 40% barrier or would the 10% be it?

[THEPUMA]

To be clear, the company has to pay corporation tax first. You then get the first £35K per shareholder tax free and 10% on the balance. There is no further tax to pay. Easiest to illustrate by way of example:-

Let's say you earn £100K after expenses (inc salary say £5K) but before taxes over each of the next 5 years. You therefore earn £500K over 5 years.

The company pays 19% corporation tax on this leaving £405K in the company coffers before dividends. You draw out £30K pa by way of dividend as this is tax free. This leaves the company with £255K to distribute.

You pay this equally to yourself and your wife (assuming you are male and married) by way of capital distribution. The first £70K is tax-free so you pay £185K @ 10% = £18,500.

Everyone's a winner.

[Hiram King Of Tyre]

Why only take salary up to the top of the 0% band? Surely 10% plus NIC is cheaper than 19% Corporation tax?

[THEPUMA]

No. Not once you take account of the 11% employee's NIC and the 12.8% employer's NIC.

[Hiram King Of Tyre]

OK, I didn'r realise that NIC was so steep. it is all paid on gross salary? On the full salary?