National Minimum Wage or £97 pw?

[rawly]

I believe that now you get a full years credit if your income is between the LEL (84/87) and the primary threshold (97/100)

What's that in real money terms?

[ASB]

What's that in real money terms?

The cost to the taxpayer is the NI due at this level (i.e. nil).

The benefit is a years credit towards the standard state pension. In order to get a full state pension you need a full contribution record.

http://www.ft.com/cms/s/c6ccd9fc-b85...0779e2340.html

It would be wise to check whether you do get the years credit if you plan to rely on it and not make voluntary contributions though.

[hugebrain]

Imagine you're a hungry lion...

you're looking at the gazelles, trying to pick out the weakest member of the herd to make an easy kill. Do you go for the strongest?

Now, imagine you're a tax inspector, targets to meet to get that big bonus. Do you pick the contractor who knows his rights and organises his affairs in a tax efficient way, or do you go for that timid, limping, contractor who is already prepared to give up a grand a year under the vaguest of threats?

Just a thought. IANACA.

[rawly]

So - in real terms - its £85 a week you need to get paid full benefits - so even the £5k people are OK.

[oraclesmith]

you're looking at the gazelles, trying to pick out the weakest member of the herd to make an easy kill. Do you go for the strongest?

Now, imagine you're a tax inspector, targets to meet to get that big bonus. Do you pick the contractor who knows his rights and organises his affairs in a tax efficient way, or do you go for that timid, limping, contractor who is already prepared to give up a grand a year under the vaguest of threats?

Just a thought. IANACA.

I'd go for the one who I could make me the most extra tax, so there are more factors in the mix than just the basic salary level. For a £5k but high earning contractor on maximum expenses the inspector has at least two, maybe three, simultaneous lines of attack. (a) they would claim you should pay NMW (b) they would probably have a close look at your expenses and (c) they would look at your contracts IR35 status - your VAT inspection would reveal your invoice history. Also maybe look at making a case for taxing divi's to close non-contributing shareholders a la S660A.

Of course the very juiciest cases would have been one-person limited's paying as little tax as possible for a number of years (can go back seven I think) whilst on a high income (more potential gain because of the UEL) and on long term contracts with hefty expenses and probably pay divi's to their partner too. There will be a huge contrast between the going rate for the work they do (eg. IT programme management) and the salary they take (part-time cleaner).

Another way of looking at this is that if you don't mind the hassle of an inspection, but you stand to lose a lot of income if you do, then just put the excess of total income minus IR35-calc income and put it in some sort of investment so that if you ever need to pay Gordo's lads you will have it available.

In my opinion.

[THEPUMA]

a couple of points in response to queries made:-

you can make pension contributions of up to 215K irrespective of the level of salary, assuming the contributions are made by the company.

I believe that you get no greater state pension whether you pay yourself 97 or nmw

[ASB]

a couple of points in response to queries made:-

you can make pension contributions of up to 215K irrespective of the level of salary, assuming the contributions are made by the company.

I believe that you get no greater state pension whether you pay yourself 97 or nmw

215k pension contributions: Questionable. Anything in excess of 100% of salary would appear to be in the inspectors gift (not saying you can't just that is's not certain relief will be available).

State pension: Not sure on the current set of rules. Was SERPS and is now the state second pension - However I do imagine the difference between 97 and NMW would be rather small.

[hugebrain]

pensions?

215k pension contributions: Questionable. Anything in excess of 100% of salary would appear to be in the inspectors gift (not saying you can't just that is's not certain relief will be available).

I need to do my pension soon. Is 100% of salary definitely OK? Did they finally get around to publishing the rules or is it still deliberately vague?

If 100% limit is in force for the company, can an individual also contribute to their own pension?

[Maxamus]

im gonner put this forward to my accountant and report back.

[philip@wellwoodhoyle]

As a firm, we also advise on the £5-£6K salary level. On that level, there is no difference in eventual S2P pension as someone on say £9k.

As to pension contributions, tax consultants we have consulted say that pension contribution tax relief is not linked to the actual salary paid - if a person is doing a "job worth £50,000", they can be remunerated anywhere between say a £45k wage and £5k pension, or a £45k pension and £5k wage.

We definitely don't recommend anyone to pay themselves the NMW - either they go for the £5-£6k level, or we tell them that they'd have to pay themselves considerably more - say £25k and over to really gain an upper hand to reduce the risk of HMRC challlenge. Our view is that there is no clear difference between £5k or £9k when someone's PSC is earning £100k plus - both look just as suspicious to the tax inspector if they are that way inclined.

We have likewise been operating on this basis for several years and have no successful challenges by HMRC in this time on hundreds of clients doing the £5k salary option. I honestly believe it is just scaremongering and must 100% agree with the original poster. Just make sure there is no contract of employment and you're home and dry. Paying a slightly higher wage, in our opinion and experience, does absolutely nothing towards reducing the risk of IR35 or S660 challenge. The high marginal increase in tax and NIC far outweighs the slight perceived benefits.