Paying too much salary?

[smalldog]

yep, just think about the number of businesses that dont make any money, so how could they pay a salary. Directors dont draw salaries sometimes for years while the business establishes itself hence them not being under NMW rules. You dont have to pay yourself a penny if you dont want to....

[Fred Bloggs]

Getting IR35 insurance cover is more difficult if you pay <~£10k salary. At least for the QDOS policy anyhow that I have.

[Archangel]

I know this has been done to death before, but here is my 0.02 worth.

1) The 12k difference will cost you approx £2400 net a year (N.I), so if you would prefer to give Gordon and his bunch this extra each year then continue on your current course.

2) When MyCo/Me were investigated for IR35, no mention was made of either the salary I took from the company (6k at the time IIRC), or the fact that I recieved monthly dividends (and the amounts hardly changed) . (or indeed the 10k "directors loan" than I borrowed for a month).

IANAL etc

[xoggoth]

I always used to pay £1k pm on accountant's advice, not sure how much difference it really makes but there is the insurance point above.

[Chugnut]

I know this has been done to death before, but here is my 0.02 worth.

1) The 12k difference will cost you approx £2400 net a year (N.I), so if you would prefer to give Gordon and his bunch this extra each year then continue on your current course.

2) When MyCo/Me were investigated for IR35, no mention was made of either the salary I took from the company (6k at the time IIRC), or the fact that I recieved monthly dividends (and the amounts hardly changed) . (or indeed the 10k "directors loan" than I borrowed for a month).

IANAL etc

The trouble is that this is not an exact science. The next inspector is just as likely to have an issue with a low salary / monthly divs, the one after maybe not. So all you can do is take a position you are happy with and which satisfies your other criteria, cash flow, morals, IR35 insurance, etc.

If HMRC docs stated "You're a Director, please pay yourself no more than 6k a year if you're outside IR35, and here's exactly how you do that, by the way..." no one would deviate and their tax take would suffer.

Clarity is the last thing they want: IR35, income shifting, "realistic market salary", and the current P35 question 6 debacle is all the proof we need of that.

[THEPUMA]

The trouble is that this is not an exact science. The next inspector is just as likely to have an issue with a low salary / monthly divs...

Not sure I can agree with that. I've never come across any Inspector with this stance, nor heard anyone else mention it. Have any accountants on here ever experienced it?

In any event, they can have an issue with it all they like. There's nothing they can do about it.

The only reason I've come across to pay a higher salary is as stated previously, that it is a requirement of a QDOS (and some others I suspect) insurance policy. Personally, I would just go with a different insurance provider that didn't require it, assuming their premiums weren't £2K more than QDOS'

[Chugnut]

Not sure I can agree with that. I've never come across any Inspector with this stance, nor heard anyone else mention it. Have any accountants on here ever experienced it?

In any event, they can have an issue with it all they like. There's nothing they can do about it.

The only reason I've come across to pay a higher salary is as stated previously, that it is a requirement of a QDOS (and some others I suspect) insurance policy. Personally, I would just go with a different insurance provider that didn't require it, assuming their premiums weren't £2K more than QDOS'

If it were a black and white issue, why do some very well regarded accountants and insurers recommend 10-12k even when safely outside IR35 then?

[THEPUMA]

If it were a black and white issue, why do some very well regarded accountants and insurers recommend 10-12k even when safely outside IR35 then?

The insurers because it is effectively an excess payment. It substantially reduces the payment they would have to make.

The accountants - no idea. I have asked many times and never received a satisfactory explanation. Go back and read some of the old threads. No point reopening old wounds!

[ASB]

Not sure I can agree with that. I've never come across any Inspector with this stance, nor heard anyone else mention it. Have any accountants on here ever experienced it?

My previous accountant came close when dealing with an investigation. But it is not based on recategorising dividends. In this case there were some deficiencies in the minutes and there was a bit of sabre rattling.

I am entirely convinced that it is an urban myth. Ultimately if the dividends are properly declared and minuted then there is nothing can be used to recategorise it as salary.

[Mustang]

pay myself a £10k salary, when my monthly mortgage alone would eat all or more of that up over a year, leaving me with nothing to live on - in terms of what I was declaring at any rate

This is the part that worries me. If I only draw a small salary and it is obvious (upon inspection) that the "salary" I draw is not likely to cover my outgoings, then I am asking for trouble? Or??

Based on what I have read on here over the years either most of you have very little outgoings and therefore legitimately do this OR you are taking a gamble....!! Wonder which one it is?!

Anyone care to share?!

Don't worry I am not an HMRC employee!! Honest!!