National Minimum Wage or £97 pw?

[THEPUMA]

OK I don't want to get back into a confrontational debate on this but will address the points made:-

I suggest then that you liaise with a number of other 'non-common sense', professionally qualified accountants who belong to the ICAEW. I know for a fact that many would never endorse your minimum wage/below minimum wage salary strategy to any of their OMB clients. I doubt that many high street accountants would either. I've already been onto a few and they are totally against this sort of approach.

The whole purpose of this thread was to liaise with other accountants and contractors for their view on this. My starting assumption is that my clients would like to minimise their tax liabilities, provided this doesn't open them up to an increased risk of enquiry further down the line.

Therefore, unless someone can come up with a valid reason not to pay the NI threshold (which is usually the most tax efficient salary), that is what I will advise. To date noone on this forum has come up with anything which is, in my opinion, valid.

You may have spoken to many professionally qualified accountants but what rationale have they given you? The only reason I have heard from you is the "common sense" reason, which simply has no weight in law.

Many accountants are conservative and would prefer an easy life. That is why they recommend NMW. I prefer to save my clients money.

If you are so correct about the legal implications of paying a lower salary plus divis, why is it that the insurance companies are not endorsing your strategy either??

I have mentioned this several times on this thread before. It is simply an additional excess through the back door.

The general guidelines, from what I understand, is for OMBs to pay themselves a realistic market based salary.

These "general guidelines" simply don't exist.

All I am doing is endorsing a safer non-tax avoiding approach that could ward off an investigation and stop a legal battle ensuing in the first place.

Again, read through the thread. The accountants on here (including Simon from SJD) acknowledge that there is no link between level of salary and likelihood of investigation.

Frankly, I think it is you that is spreading irresponsible propoganda to many OMBs on here who are being actively encouraged (or should I say promoted and facilitated) to pay themselves far less in salary than they could conceivably live on which is no defense when blatently accused of tax avoidance followed by a hefty bill later on down the line.

There is no tax legislation whihc tells you you have to pay yourself enough in salary to live on. This is an absurd concept. There are millions of people out there who live beyond their means. That is why credit card companies exist. If your supposition were correct, I wouldn't be allowed to retire early and live off my savings!

So shes a lecturer. Maybe if she was an accountant that would have worked out well..

In addition to being a lecturer she is a practising accountant.

[Vito]

The idea that you have to pay yourself enough to cover your living expenses is ludicrous Denny...if you and I have ltd's that generate the same amount of profit year on year and do exactly the same work, but I pay myself £50k per annum and the rest through divi's and you pay yourself £20k per annum and the rest through divi's juts because I have a bigger house and a shed load of kids, does that sounds right? Not to me it doesn't...

This is actually a pretty straight forward situation...

The law is very clear (unlike IR35)...you are perfectly entitled to run your business in the most tax efficient way possible (in fact as a company director this is your responsibility to your shareholders) both legally and ethically. As things currently stand, that means paying yourself £5,225 and issuing the rest of the company profits as dividend payments to shareholders.

In fact, you could argue that my children (who own a 5% stake in my business) could probably take me to court for some kind of fraud if I was to pay myself a greater salary, thus reducing the payments going to them!!

Every major corporate organisation I know exploits every tax loophole available to them...this is not avoidance, this is efficiency.

The reality of this for me, is that the only reason anyone would pay themselves NMW or higher is because they are worried about a tax investigation based on IR35 and they are hoping this will help keep the wolf from the door. It is these people that you could argue are not genuine Ltd's as if they were, they would have nothing to worry about. Given the greyness of IR35 it is not quite as simple as that, but I'm sure you understand what I'm saying.

Personally, I am pretty confident that I operate in an IR35 friendly way at all times, but I am not certain...equally, I feel that paying some NI is a good thing to do, as one day they might suddenly penalise people that haven't paid any for a while...and finally, I don't like hassle although I don't like giving money away either.

All this in mind, I choose to pay myself about £12k per year which I hope may prevent an investigation that may (unlikely but possible) determine I am 'employed' and will certainly cause me a whole heap of hassle. The £12k payment may make no difference whatsoever and there is no evidence to support my assumption that it may prevent an investigation or may help defend my case...but in my logical mind (and yes I know people will say the tax bods don't operate in a logical way but lets be grown up here for a second) if I was to target people I would first look for people paying themselves £5225 p/a and then people paying themselves dot on the NMW...thus paying my £12k reduces my risk of investigation, ensures NI contributions and gives me a guaranteed cash flow each month (I take divis qtrly).

Whichever way you cut it, what prompts a tax investiation and what reduces the risk is all specualtion and it comes down to personal choice and interpretation...but...what is very clear to me is that those that choose to operate by paying themselves NMW are not avoiding tax but are just operating in the most tax efficient way ALLOWED by the treasury.

Rant over, I shall now go and have a coffee and calm down...

And Malv...before you respond, yes we all know that we are most likely giving money away for nothing!!

[Vito]

First I deal with tax avoidance, now I'm dealing with rational argument avoidance.

Both of you seem to have side stepped most of the rationale for the points I actually made in my answer.

Vito:

Every large corporation exploits every tax loophole -yawn. My argument was based around OMCs not large corporations, as clearly stated.

All the time you bury your heads in the sand you end up not being able to hear properly. So, if your reading skills are as good as your hearing, no wonder you are coming out with the advice you are doing.

By the way Vito, SJD DOES advocate paying a certain salary rate to lessen the liklihood of keeping the wolves from the door. So you are wrong on that count too.

So...if a large corporate is allowed to be tax efficient...why is it avoidance when we do it?

As your reading skills are clearly superior, at what point did I give advice, which you claim i did? Also, at which point did i suggest that SJD do not advocate paying a certain salary rate?

[Vito]

It is also very clear that you are running your business as a tax avoidance vehicle. This makes it hard for genuine OMBs and acorns to be treated fairly by the government and will ultimately ensure that both your company and those other 'properly run' companies ultimately end up being shafted by Gordo by hikes in CT - just as they have in the last budget.

A good strategist takes the long term view, not the short term 'grab and run' strategy favoured by ex bank robbers living it up in some Spanish villa hidaway. I suspect that your kids will pay dearly for Dad's rather dubious tax planning route further on down the line - as we all will.....as we all will....

Be very careful Denny...this is overstepping the mark...

[THEPUMA]

PUMA misrepresenting me by claiming that my argument, after talking to other accountants, was based on common sense. It was me, PUMA, that stated it was common sense, not the accountants in the way you have skewed it. Thir own arguments are based on something far more robust, I suspect.

I can only address specific points put to me, and the only argument you have put on this forum is the "common sense" argument. When you have had these several conversations, presumably you didn't ask them their rationale for their advice? If you did, let me know and I will consider the merits of the arguments. If not, my initial post pre-empted those arguments I thought people may come back with so I would refer you to that.

You claim that accountants want an easy life - 'anything for an easy life.' Why should their lives be any more difficult if they adopt your perfectly acceptable strategy then? Why is their lives easier based on advising clients in the way they do? You don't explain this at all. Come to think of it, why would they want to make their own lives easier if they can make a buck out of a long prolonged investigation and more work - it doesn't make commercial sense. Remind me never to come to you for tax planning advice.

Because they are misinformed and because they do not like putting their heads above the parapet. The easy advice is to tell people to pay more tax than they need to. There are accountants out there who advise all their clients to treat themselves as caught by IR35. It is poor advice but it makes for an easy life based on the accountants' misjudgement of what the legislation says.

By the way Vito, SJD DOES advocate paying a certain salary rate to lessen the liklihood of keeping the wolves from the door. So you are wrong on that count too.

I guess this should have been addressed to me. However, I never said SJD didn't advocate paying a certain salary. I am fully aware that they do. I said that Simon from SJD acknowledges that there is no link between level of salary and likelihood of investigation which he does on this very thread.

The size of salary has absolutely no impact on whether a contractor will be investigated. We had a contractor who was paying under IR35 and they still investigated him!

[Lewis]

It is simply an additional excess through the back door.

Having mentioned QDOS I feel I should answer this as they cannot themselves. I was told they will not insure any company where the director is paid less than £9,500 (this is only their TLC35 tax loss product). I will try and get confirmation as to why.

So this is not a back door excess because they simply will NOT insure you. An excess is applied on salaries between £10K and £15K which could be discussed but as we are talking about salaries of around £5K vs those around £10K I think it is confusing the issue considering the QDOS excess.

A more interesting question to me is why QDOS will not insure those paying a £5K salary and I will do my best to find out and post back.

[ab9132]

Since when were you the forum cop deciding what is acceptable and what isn't? I'm entitled to express my views just like any other on here.

Right first post, normally just lurk reading the forums.

He/she became the forum cop when you accused him/her of running their company just for tax avoidance reasons.

Paying a low salary/high divs is tax efficient NOT avoidance. You have therefore overstepped the mark tossing accusations like this around.

And for the record my accountant, a high street accountant recommends I pay myself £94 a week.

[Vito]

Right first post, normally just lurk reading the forums.

He/she became the forum cop when you accused him/her of running their company just for tax avoidance reasons.

Paying a low salary/high dvis is tax efficient NOT avoidance. You have thereofere overstepped the mark tossing accusations like this around.

And for the record my accountant, a high street accountant recommends I pay myself £94 a week.

Thanks AB...I'm the same as you...following advice from a respected accountant used by many on here...

Denny - I have not become the forum cop...I was responding as an individual saying that you have overstepped a personal mark...and I will re-iterate that, be very careful of accusing me of doing anything illegal...tax avoidance is clasified as money laundering these days so pretty serious...accusing me of a serious offence in print is not very smart...I don't wish to get into a personal battle so I will step out of this thread now, but please give careful thought to the way in which you phrase things in future, particularly if aimed at me.

This is a discussion board and it is fine to disagree with others...the arguements are often both valid, constructive and most of the time amusing (as they are mostly meant in a good natured way with a smile on face) but accusations of illegal practice aimed at others goes too far.

[ASB]

I will re-iterate that, be very careful of accusing me of doing anything illegal...tax avoidance is clasified as money laundering these days so pretty serious...accusing me of a serious offence in print is not very smart

Nope. Avoidance is still an intellectual persuit. Although it is much more frowned upon these days than previously of course.

Denny does however make some valid points. However they are purely based upon a moral not legal view. Essentially her argument seems to go "because I think this is what the framework of legislation intended then this is how people should behave".

Over the last 25 odd years there have been a number of interesting pieces of legislation aimed at close companies. There was, for example, the investment income surchage. An extra 15% tax on dividends from close companies. The deemed distribution rule. Here if you didn't pay all remaining profit as a dividend you got taxed as though you did (very expensive to retain funds and grow in that environment).

From a personal perspective I do think that paying NI threshold only and divis is taking the mick a bit. However for the entire time I was contracting I used the system legally and legitimately to my advantage. It is not my job to make the system "right". Only to act within it.

If the government wants to make the system "fairer" it needs to remove the smaller companies rate of CT.

From personal experience of investigation there was absolutely no question at all in the inspectors mind that minimal/no salary (it used to be most efficient to pay no salary on voluntary NI but isn't now) was OK.

It may well increase the chances of investigation, but it's not going to affect the outcome.

[THEPUMA]

If the government wants to make the system "fairer" it needs to remove the smaller companies rate of CT.

Within a couple of years we will have a 22% CT rate for small companies and 28% for large companies. Many commentators believe that this is paving the way for a flat rate of 25% before too long.