Paying too much salary?

[Lewis]

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!!

Nowhere does it say salary must cover your outgoings. Some people think minimum wage should be applied even though it is not necessary for directors. A few think a low salary might attract an investigation others disagree. £5K is considered by some risky. I know of nobody who considers £10K risky. QDOS require £9.5K+ for their insurance as they believe below that there is an increased risk of investigation. Others disagree .. been done to death in other threads.

[ASB]

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!!

Personally I don't think it's a gamble at all. For years I had huge outgoings which were in no way covered by salary. It just so happened that a very modest investment I made paid off spectacularly well.

Ok, I accept it's not the same as somebody who largely lives off the income from investment but does a pocket money job for something to do but this sort or anomoly is always going to occur whilst there is a distinction between how earned and unearned income is taxed.

It didn't used to be this way about 25 years ago. There used to be a thing called the investment income surcharge which made the overall tax/ni treatment of both sort of income about the same.

[dmini]

We had an accountancy speaker at a PCG meeting, and he spoke about this. Paraphrased a bit - cos it was over a month ago, HMRC are more inclined to go after those cases where there is a likelihood of getting a large amount of money - ie low salary / high dividends. There were a number of pointers that meant you were more likely to get investigated heavily, this being one. It may not come into the arguments of IR35 etc, but if you lose they get more money - not that they are driven by that at all
There were other points that Paul made - I honestly cannot remember them at the moment.

[THEPUMA]

We had an accountancy speaker at a PCG meeting, and he spoke about this. Paraphrased a bit - cos it was over a month ago, HMRC are more inclined to go after those cases where there is a likelihood of getting a large amount of money - ie low salary / high dividends. There were a number of pointers that meant you were more likely to get investigated heavily, this being one. It may not come into the arguments of IR35 etc, but if you lose they get more money - not that they are driven by that at all
There were other points that Paul made - I honestly cannot remember them at the moment.

There is some logic to this, although I haven't seen it in practise. The same logic would suggest that HMRC are far more likely to go after someone who has had their company 6 years or more as they can collect tax going back 6 years.

As an HMRC Inspector, based on tax maximisation I would be far more likely to go for a company paying £10K salary that had been around 10 years than one paying £5K who had been around 2 years.

Whether HMRC do either or not is debatable but on several occasions I have done calculations showing that the additional risk is minute in comparison to the additional NI being paid.

[Qdos Contractor]

[QUOTE=THEPUMA;568480]The insurers because it is effectively an excess payment. It substantially reduces the payment they would have to make.
[QUOTE]

I can categorically confirm that our minimum salary level has nothing to do with reducing the payout should the client be caught by IR35. I've already explained on here previously that, in our experience (bear in mind we've dealt with over 1000 IR35 cases), we have found that low salary levels increase the risk of enquiry.

Coincidentally, in the last couple of weeks we have actually decided to reduce the minimum salary level to £5k. Given the reduction in take up of IR35 enquiries over last few years, we feel the time is right to relax the salary stipulation slightly to allow contractors greater access to the TLC product.

[Cheshire Cat]

[QUOTE=Qdos Consulting;568872][QUOTE=THEPUMA;568480]The insurers because it is effectively an excess payment. It substantially reduces the payment they would have to make.

I can categorically confirm that our minimum salary level has nothing to do with reducing the payout should the client be caught by IR35. I've already explained on here previously that, in our experience (bear in mind we've dealt with over 1000 IR35 cases), we have found that low salary levels increase the risk of enquiry.

Coincidentally, in the last couple of weeks we have actually decided to reduce the minimum salary level to £5k. Given the reduction in take up of IR35 enquiries over last few years, we feel the time is right to relax the salary stipulation slightly to allow contractors greater access to the TLC product.

tender loving care. awwww.

[THEPUMA]

I've already explained on here previously that, in our experience (bear in mind we've dealt with over 1000 IR35 cases), we have found that low salary levels increase the risk of enquiry.

You did explain that but when probed you were "not really prepared to get into a convoluted argument about this."

[Fred Bloggs]

QDOS- I have the QDOS IR35 policy that covers investigation and penalties upto £50k. Can you confirm please that I can now reduce my salary from £10k to £5k and still be fully covered for no increase in premium?

[malvolio]

Have to say the only half-convincing argument I've heard was the one that said future legislation that would affect contracting may well be tied to the NMW level. It does seem a pretty flimsy basis to pay an extra grand or two in tax though...

[Qdos Contractor]

QDOS- I have the QDOS IR35 policy that covers investigation and penalties upto £50k. Can you confirm please that I can now reduce my salary from £10k to £5k and still be fully covered for no increase in premium?

Yes, you can reduce your salary and there will be no increase in premium. Please contact us directly so we can make the adjustment on your policy.