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Personal allowance Question

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    Personal allowance Question

    Hi All,

    I have attempted to search previous threads & Google but cannot find examples or answers. Ultimately, I do know this is one for my accountant, but just trying to find a more informed understanding if any one has been through a similar situation or to confirm whether I am just being really thick!

    I am moving from a perm role to an outside contract in the upcoming month, everything is in place and just awaiting the contract to sign. My question is surrounding personal allowance which stands at £12,570, which obviously ties in with the lower salary you would pay yourself....how have you approached paying yourself for the remainder of the tax year if you have eaten up your personal allowance via a perm role and then switched to a contract mid way through a tax year?

    I feel like I will get torn to shreds for this question (and probably rightly so) but I am really after examples of similar positions you guys have been in and how it impacted your pay for the remainder of the tax year.....

    #2
    As NICs work differently to income tax, we tend to suggest it often makes sense to still take the typical NIC threshold salary for the remainder of the tax year. Ie that salary will still be NIC free, even if you've earned big bucks in a salary earlier in the tax year.

    Hence it's 20%/40% income tax (and no NICs) for that low salary
    vs
    19% CT + 8.75%/33.75% income tax (also no NICs) if you took it as dividends instead.

    It will depend a bit on your circumstances though. Eg if you've earned £100k in the tax year to date, have loads of savings to survive off, then there'd be a good argument to not take a salary at all.

    Comment


      #3
      Originally posted by Rik1087 View Post
      Hi All,

      I have attempted to search previous threads & Google but cannot find examples or answers. Ultimately, I do know this is one for my accountant, but just trying to find a more informed understanding if any one has been through a similar situation or to confirm whether I am just being really thick!

      I am moving from a perm role to an outside contract in the upcoming month, everything is in place and just awaiting the contract to sign. My question is surrounding personal allowance which stands at £12,570, which obviously ties in with the lower salary you would pay yourself....how have you approached paying yourself for the remainder of the tax year if you have eaten up your personal allowance via a perm role and then switched to a contract mid way through a tax year?

      I feel like I will get torn to shreds for this question (and probably rightly so) but I am really after examples of similar positions you guys have been in and how it impacted your pay for the remainder of the tax year.....
      short answer. Don't pay yourself a salary. Just take dividends as and when the company can afford them.

      Long answer. Get your accountant to help you with the help of knowledge based on your personal circumstances.
      See You Next Tuesday

      Comment


        #4
        This does get asked pretty regularly but oddly enough I'm having trouble finding them. A few here.

        https://forums.contractoruk.com/acco...dividends.html

        https://forums.contractoruk.com/acco...scal-year.html

        https://forums.contractoruk.com/acco...questions.html

        But as you'll see in all those and this thread the key advice is speak to your accountant. Not understanding the basics means whatever we say to you is also going to be difficult to understand and you'll end up confusing yourself.

        So your accountant is your first port of call.
        'CUK forum personality of 2011 - Winner - Yes really!!!!

        Comment


          #5
          Originally posted by Maslins View Post
          As NICs work differently to income tax, we tend to suggest it often makes sense to still take the typical NIC threshold salary for the remainder of the tax year. Ie that salary will still be NIC free, even if you've earned big bucks in a salary earlier in the tax year.

          Hence it's 20%/40% income tax (and no NICs) for that low salary
          vs
          19% CT + 8.75%/33.75% income tax (also no NICs) if you took it as dividends instead.

          It will depend a bit on your circumstances though. Eg if you've earned £100k in the tax year to date, have loads of savings to survive off, then there'd be a good argument to not take a salary at all.
          Thanks for the detailed response as always Maslins . Nice to meet you at the do as well.
          'CUK forum personality of 2011 - Winner - Yes really!!!!

          Comment


            #6
            Thank you all, that really helps, and will inform my discussion with said accountant tomorrow.

            northernladuk - thank you for the links, again, really helpful.

            Comment


              #7
              Originally posted by Lance View Post

              short answer. Don't pay yourself a salary. Just take dividends as and when the company can afford them.

              Long answer. Get your accountant to help you with the help of knowledge based on your personal circumstances.
              Hi.
              Can this be done? I think that the accountant will act only and according to the advantages of the company and not his own. Whenever I tried to approach the one of the company I work for, his answer was not really encouraging.

              Comment


                #8
                Originally posted by Gibson View Post

                Hi.
                Can this be done? I think that the accountant will act only and according to the advantages of the company and not his own. Whenever I tried to approach the one of the company I work for, his answer was not really encouraging.
                What?? Of course it can be done. You are a director and can decide to pay you whatever you want whenever you want, including nothing if you don't want to.
                If you've got an accountant that won't explain the most efficient way to run your compay including salary levels you want to get a new one. This is really basic stuff.
                'CUK forum personality of 2011 - Winner - Yes really!!!!

                Comment


                  #9
                  Originally posted by northernladuk View Post

                  What?? Of course it can be done. You are a director and can decide to pay you whatever you want whenever you want, including nothing if you don't want to.
                  If you've got an accountant that won't explain the most efficient way to run your compay including salary levels you want to get a new one. This is really basic stuff.
                  Yep... Even SJD were happy with this when I first went contracting.

                  Gibson please explain what you men by 'not encouraging'? I'm intrigued as to the reasoning. But it's likely you should get a new one sharpish.
                  Last edited by Lance; 14 July 2022, 08:08.
                  See You Next Tuesday

                  Comment


                    #10
                    Originally posted by Gibson View Post

                    Hi.
                    Can this be done? I think that the accountant will act only and according to the advantages of the company and not his own. Whenever I tried to approach the one of the company I work for, his answer was not really encouraging.
                    You need to learn how to ask questions.

                    So Maslins and others on this thread, and other threads have given you an idea of what can be done. You then just need to ask your accountant whether an idea, idea 1, or another idea, idea 2, would be the best for you. Your accountant then can suggest - this is the important word suggest - that another option, idea 3, will be better for you. You then as the director of your company can decide which of the 3 ideas is the best for your company.
                    "You’re just a bad memory who doesn’t know when to go away" JR

                    Comment

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