What's the minimum salary I can pay myself?

[THEPUMA]

What a fantastic thread, thanks for putting that up. There is far more info there than I could find elsewhere on the net, and it's mostly balanced views from a range of perspectives. Perfect.

I have now decided that, considering:
a) I am new to contracting (ie, I don't have many years of money to care about)
b) My contracts are said to be outside IR35 and mostly short term (1-3 months)
c) Even if I was investigated, I wouldn't have all that much to lose

...that I will ignore my accountants advice and go with the minimum salary option.

What is that now, £100 per week? It seemed to have changed over the course of that thread.

Yes £100 per week.

Good decision BTW!

[Gros]

Yes £100 per week.

Good decision BTW!

[Nixon Williams]

I would differ!

Whilst not wishing to repeat the previous debates I consider that a salary in line with the NMW is advisable.

I would argue that there is an implied contract of employment with your company, even if this is not in writing.

Your main work with your company is as a worker and not in the formal role of director.

I would agree that it appears HMRC seem unlikely to pursue this....at the moment.

We set out the options to our clients, it is for them to decide, but we do recommend a salary at least at the NMW rate.

Alan

[Davey78]

I've read this thread with some interest as I have recently started out on my first contract; having set up a Limited company I am facing the same situation regarding how much to pay myself.

I've come to the conclusion that, despite the tax disadvantages, it seems more correct to pay myself a minimum wage salary. However, I don't want to pay myself for more hours than is really necessary.

Therefore, how many hours per week should I base my salary on? Is there a guideline on how many hours is considered full-time for a salaried employee?

Cheers,

Davey

[Sockpuppet]

Salaried and paid by the hour are two different things. You have to be one or the other.

[Davey78]

Salaried and paid by the hour are two different things. You have to be one or the other.

Yes, and I intend to pay myself a monthly salary that is in line with minimum wage. However, the minimum wage is set at an hourly rate.

Therefore, how many hours per week are considered "full time" for the basis of a salary that is above minimum wage?

The reason for asking this is that if I were to write myself a contract that said my monthly salary was based on 10 hours per week, with overtime voluntary and unpaid, this would clearly be nonsense. There must be a reasonable minimum number of hours which are considered full time for salary purposes.

[FarmerPalmer]

I am director of limited company and am currently contracting.

What's the minimum amount I can pay myself in salary? I guess £5100 if I want to stay in State Pension, but suppose I'm not interested in this?

if inside IR35 then
((95% of turnover) - (pension + employers NI))
else
£0

[backlight]

The reason why it is more tax efficient to pay yourself 5200 rather tan 0 is probably best shown by example, because it doesn't really sound right.

T/Over 10,000
Expenses Nil

Profit 10,000
CT 2,000

Available for dividend £8,000

Personal side: no recalim is available, so net in pocket = £8,000, tax paid (self and co) = £2,000

---------------------------------

T/Over 10,000
Expenses Nil
Salary 5,200 (ee/er NI + paye = 0)

Profit 4,800
CT 960

Available for dividend £3,840

Personal side: net in pocket = £9,040. Total tax = £960.


A further advantage of the salary is that between the LEL for NI and the zero rate although the NI payable is nil you still get a years pension entitlement (but check....)

[Of course if you have salary from elsewhere as well then you might as well pay no salary]

Sorry I'm a bit new at this - but this calculation does not seem to take into account the tax on dividends once distributed. Am I missing something?

[ASB]

Sorry I'm a bit new at this - but this calculation does not seem to take into account the tax on dividends once distributed. Am I missing something?

Yes. There is no additional tax on dividends distributed (until such point as the 40% band is reached).

[minstrel]

Sorry I'm a bit new at this - but this calculation does not seem to take into account the tax on dividends once distributed. Am I missing something?

There is no additional tax to pay on dividends if you stay below the High Rate threshold (around £40k).

Dividends do incur tax at 10%, but when you receive dividends you also receive a nominal 10% tax credit, which effectively cancels out any additional tax liability (providing you keep below Higher Rate Threshold). This might be what you are missing.