National Minimum Wage or £97 pw?

[oraclesmith]

This is one of the myths I am trying to explode. There is no notion of fairness in the Taxes Acts.

Can you imagine a courtroom scenario where an HMRC barrister used the line of argument that "He's not paying himself enough. It's not fair."?

The argument would be 'he's not paying himself the going rate' and it would be easy to evidence by giving Jobserve a once-over.

[Maxamus]

You can pay yourself whatever salary you wish out of the Limited Company,
but if the Inland Revenue enquire into your records then you would have to
be confident that you have a strong enough argument to say that you deserved only £5,035 per year.

Part of the argument could be that you do not always utilise your time working for customers, which would obviously be generating income for the company, but you will also have to spend time on administration duties, such as going to the bank, dealing with suppliers, filing documents with Companies House etc and you can argue that these activities do not add any real benefit to the company and therefore the 'hourly rate' for your time should be reduced accordingly.

Ideally, it seems that you should pay yourself what you seem reasonable and the arguments above support it. I would say paying around £6000 - 6500 just so that you make some NI contributions (to keep that state pension going) would be ok......

[THEPUMA]

But there is no legislation that says that employees have to be paid "the going rate".

Edit - Point already made by Maxamus whilst I was whizzing through cyberspace.

[Joe Black]

You can pay yourself whatever salary you wish out of the Limited Company,
but if the Inland Revenue enquire into your records then you would have to
be confident that you have a strong enough argument to say that you deserved only £5,035 per year.

"Mr Hector sir, if it's ok for Steve Jobs to pay himself just $1 a year, then why isn't it good enough for me."

It's amazing how much confidence you can have when you have $3 billion or more to back you up.

[Maxamus]

But is it ILLEGAL ?
No is the answer

There is no legislation telling you how you should organise your taxes is there?

Likewise, if i choose to pay £500 or £10,000 for an A0 Plotter (for the business) and put it through expenses its upto me. Am i doing anything wrong by doing it?

Even if you are investigated, what can they do you with?
Your not breaking any law.

NMW does not apply to directors so you do not have to pay it.


PS. Just for the record i pay myself NMW

[VectraMan]

The argument would be 'he's not paying himself the going rate' and it would be easy to evidence by giving Jobserve a once-over.

I think it's perfect reasonable (and common) for a director to work for lower than the going rate in order to put the business above his own interests. After all, an employee is just in it for the salary, a director hopes to acheive profit down the line which he benefits from. You can't compare the two.

[oraclesmith]

I think it's perfect reasonable (and common) for a director to work for lower than the going rate in order to put the business above his own interests. After all, an employee is just in it for the salary, a director hopes to acheive profit down the line which he benefits from. You can't compare the two.

Yes, but the flaw in this argument is that small business directors typically take a lower salary so that their company can fund expansion during it's early years. The IT contractor limited company director typically hasn't got anything to inwardly invest in, except maybe his/her own training. And they won't be putting the business above their own interests if they take all the profits at the end of the year in divi's, leaving the company with nothing in the bank.

[Maxamus]

In my opinion, there is no difference wheather you pay NMW or £97p/wk.
Reason being both are lower than the going market rate.

If i was to pay myself going rate then it would be around £24k-26k per annum for what i do in this region.

The chances of IR investigations is the same for both. And technically you are not doing anything illegal so on what basis can they charge you with in court? And if your not breaking any law then there is no case.

People have been paying themselves up to the allowable tax limit as a salary for years and i would love to know how many of them have been investigated....

There is a guy contracting at the same place as me under his ltd company paying himself below the NMW for 2.5yrs and so far no intereference from the tax man so far.....

[NewBoy]

If my company earns £60k this year, and I decide to pay myself £5k in salary and then £55k in the form of a dividend...is that tax evasion or is it running a tax efficient company?


If my company earns £60k this year, and I decide to payments £20k in salary and then £40k in the form of a dividend...how does this really differ from the above? If the answer to question 1 is that it is tax evasion, then this scenario is still tax evasion but just to a slightly lesser degree...if the answer to question 1 is that it is running a tax efficient company, then this scenario is the same but again to a lesser degree.

The NMW was designed for people not fortunate enough to have the skills to earn the kind of money earned by those on this board, it really is not relevant to anyone here.

IF paying yourself a higher salary (i.e. NMW) makes you less attractive to an investigation then maybe it makes sense...but even then, if you are certain you have an IR35 friendly contract, don;t fiddle your books and have insurance to cover any costs associated with an investigation...let them come and do it!

I'm just about to complete my first full year as a contractor and I will be paying myself a salary of £5k as that is the most cost efficient way of operating my business...I have two other shareholders in my business (my kids) and I have a responsibility to them to make the company (not me) as profitable as possible...I will then leave enough funds in the company to cover my salary for next year (£5k) and the rest of the profits will be issued as dividends to the shareholders. I can't see anything wrong with this.

The funny thing is...reading this post makes me feel like we are all doing something wrong and that we are the scum of the earth (which to be fair, most permie's think we are!)...but even on the basis of the above, Gordo will be getting approx. £13k from my work this year which is a hell of a lot more than a lot of people are paying...and as i have only worked 8 months of this year, I'm assuming that most people here will be contributing a lot more than me...

[oraclesmith]

"I can't see anything wrong with this"

Sounds like a settlement to me. Do your kids contribute to the business in a significant way? Are they of legal capacity?

I think people are too hung up on the thought that any of this is illegal in the usual sense of the word. It's about the HMRC working the legislation to meet tax targets so if you fall foul of it you end up with a financial problem, not a criminal one (unless you've been really naughty!). It's about personal choices and you just need to be happy with the ones you've made. Given the vagaries of IR35 and the like, there is no 'right answer' which your accountant will magically produce for you. It's your business, your life, your choice.