Salary/Dividends Tax threshold

[Lewis]

My previous accountant and my current accountant both told me it was illegal not to pay myself National Minimum Wage and that if investigated I could expect to get done for that.

I was told Directors are exempt from NMW. However, I was also recommended to pay a salary of roughly NMW to avoid the chance of future problems and investigations. Whether or not this is overly cautious has been debated before. QDOS have mentioned they believe there is increased risk of investigation when paying below around £9.5K. A quick search will reveal the previous chats I am sure.

[aj1977]

I was told Directors are exempt from NMW. However, I was also recommended to pay a salary of roughly NMW to avoid the chance of future problems and investigations. Whether or not this is overly cautious has been debated before. QDOS have mentioned they believe there is increased risk of investigation when paying below around £9.5K. A quick search will reveal the previous chats I am sure.

Yea thats the same thing my previous and current accountants advise me reg NMW.

However I have a doubt and given the fact my accounting firm is so tulip that I need to keep correcting their calculation mistakes, I better get advise here before approaching them....so here is my question...

My wife is one of the director of my company since this month and i still hold 100% shares in my company...so can i pay her just 5225 tax free money as salary as it is tax free and increases the expenses of my company and thus reduction in CT and there is no NI on 5225...(every little helps ).

Guys am i correct in my understanding?....

[ASB]

Yea thats the same thing my previous and current accountants advise me reg NMW.

However I have a doubt and given the fact my accounting firm is so tulip that I need to keep correcting their calculation mistakes, I better get advise here before approaching them....so here is my question...

My wife is one of the director of my company since this month and i still hold 100% shares in my company...so can i pay her just 5225 tax free money as salary as it is tax free and increases the expenses of my company and thus reduction in CT and there is no NI on 5225...(every little helps ).

Guys am i correct in my understanding?....

The DTI view is here:

http://www.berr.gov.uk/files/file11671.pdf

See section 22/23

"The minimum wage does not apply to company directors
unless they have contracts that make them workers.
Company directors are office holders in common law and
can do work and be paid for it in that capacity. This is true
no matter what sort of work is done or how it is rewarded."

"However, company directors who have employment
contracts will need to be paid the minimum wage. If a
company director is unsure whether he has entered into an
employment contract with his company he may wish to take
legal advice"

No contract of employment = no minimum wage requirement. I believe it is possible for there to be an implied employment contract.

It's common for accountant to advise payment of NMW and I guess it might reduce visibility on the radar a bit. It used to be the case that in order for anybody to "get done" for not paying NMW a complaint had to made by an injured party - thus HMRC could just "do you" if they discovered you were in breach. There were some movements to change this so it may no longer be true.

Some accountants who recommended this have posted on here with their reasons.

[aj1977]

The DTI view is here:

http://www.berr.gov.uk/files/file11671.pdf

See section 22/23

"The minimum wage does not apply to company directors
unless they have contracts that make them workers.
Company directors are office holders in common law and
can do work and be paid for it in that capacity. This is true
no matter what sort of work is done or how it is rewarded."

"However, company directors who have employment
contracts will need to be paid the minimum wage. If a
company director is unsure whether he has entered into an
employment contract with his company he may wish to take
legal advice"

No contract of employment = no minimum wage requirement. I believe it is possible for there to be an implied employment contract.

It's common for accountant to advise payment of NMW and I guess it might reduce visibility on the radar a bit. It used to be the case that in order for anybody to "get done" for not paying NMW a complaint had to made by an injured party - thus HMRC could just "do you" if they discovered you were in breach. There were some movements to change this so it may no longer be true.

Some accountants who recommended this have posted on here with their reasons.

Great Stuff..thanks for that..So am I correct in my conslusions reg paying £5225(tax free,NI free, Low CT) for my wife as she has no contract of employment....

[ASB]

Great Stuff..thanks for that..So am I correct in my conslusions reg paying £5225(tax free,NI free, Low CT) for my wife as she has no contract of employment....

That's my view. But it doesn't mean I'm right. There is also the income shifting rules to consider soon, but as THEPUMA said HMIT is unlikely to be worrying about justifying that level of salary.

[Jason]

I simply employ my wife on a part time basis. Thus no minumum wage issues.
She spends x hours a week bookeeping.

Nice and easy.

[Ardesco]

Whilst in theory that should be a concern, I do no think HMRC would spend too much time and energy disputing a £5K salary.

I was once told of a case of a director paying his wife a salary of c£35K which HMRC disputed and it edned up going to court. The director argues that £35K was a fair market rate for someone who would type up his notes at 11pm at night and get up at 5am to allow him to run through a presentation. Apparently the judge agreed.

I've never bothered to try and find the case and it may be an urban myth (not a particularly interesting one perhaps) but I've always thought that the logic stacks up when HMRC try and argue that a secretarial rate is £10 per hour.

Surely the problem is not so much the salary paid to her, but the dividends paid to her through her shareholding....

[ASB]

I simply employ my wife on a part time basis. Thus no minumum wage issues.
She spends x hours a week bookeeping.

Nice and easy.

NMW legislation still applies to part timers.

[THEPUMA]

Surely the problem is not so much the salary paid to her, but the dividends paid to her through her shareholding....

Either could be challenged.

[Jason]

On the hourly rate. So I can pay less, because she does less hours.

This is why the NMW becomes unimportant. I am paying here NMW but not triggering the tax bracket.