Take Home Pay

[Alan @ BroomeAffinity]

As I said it really is just a matter of opinion - we can only summise what the HMR&C will do...until they prove us wrong

That's a fact.

I personally advocate a balanced approach - smallish salary with an amount of PAYE & NIC paid with the balance paid in divis. However, if you can prove you operate outside IR35 (most of my clients can) then there is nothing to stop you paying yourself £5k in salary with the balance in dividends. That is of course one of the benefits of being in business for yourself - being able to organise your affairs in a most tax efficient manner.

[diesel]

Hi Diesel

Matter of opinion really this one but by paying yourself that little you could find questions being asked by HMR&C in the event of an investigation. I think they may question why a full time career contractor thinks a 'reasonable' salary is less than £6k per year. Although the minimum wage is low at £11k it is certainly a more realistic figure.

Thanks for your reply.
So i take it there is no right or wrong method of paying oneself as a director??
My accountants state paying directors fee is more tax efficient than min.wage which is obviously correct. But i am sure i still pay as much tax via Corp. tax than if paying tax from min. wage.

Does anyone else know if the NI contributions from a directors fee entitle one to full state benefits i.e. sick and retirement income?


Just1morethen - which legislation are you referring to?

[chris79]

I pay myself £6k salary, if they don't like it that's their problem.

Show me a law stating I can't do this, it's a nice theory but if you are taking 75k in dividends as opposed to 80k I hardly think HMRC are going to turn a blind aye and say "oh look, that chap paid a few hundred quid PAYE and NI so lets ignore him".

[Alan @ BroomeAffinity]

Just1morethen - which legislation are you referring to?

The National Minimum Wage Act 1998

[Alan @ BroomeAffinity]

I pay myself £6k salary, if they don't like it that's their problem.

Show me a law stating I can't do this, it's a nice theory but if you are taking 75k in dividends as opposed to 80k I hardly think HMRC are going to turn a blind aye and say "oh look, that chap paid a few hundred quid PAYE and NI so lets ignore him".

Can't argue with that and it was the point I was originally trying to make.

There could even be an argument put forward that because you are not paying yourself in the most tax efficient manner possible, then you are in effect admitting that you might be borderline.

As I said, a balanced approach is probably best, but at the end of the day, the client makes the decision.

[Lewis]

Is there any hard, conslusive evidence that this actually matters with respect to the likelyhood of a HMRC inspection? Or is it an urban myth?

QDOS have always claimed they consider there to be a higher chance of investigation. Plus some accountants argue that even for a diirector an implicit contract of employment exists and therefore minimum wage applies.

[d000hg]

If you DO get investigated, how much of a pain is this, assuming you are doing everything right? Can your accountant do everything or will it take up a chunk of your time?

[Alan @ BroomeAffinity]

If you DO get investigated, how much of a pain is this, assuming you are doing everything right? Can your accountant do everything or will it take up a chunk of your time?

You'd generally have to meet up with the Little Hector at least once. If you're books are in good order and all your paperwork checks out then your accountant should manage it for you. If, however, it turns out that yuor operating inside IR while claiming to be outside (or even if that is what the Revenue assert) then it could take up more time than you could possibly wish. Jon Bessel, MD of Dragonfly Consulting Ltd would, I'm sure confirm this.

[TheFaQQer]

I'm slightly disappointed with the original post.

We all know that if you go through an umbrella company, then using their magic dispensation, you can claim what you want with no receipts needed, so you can just maximise your income that way - claiming expenses without needing any receipts (or even spending the money!) is the way forward, surely?

Shame on you, Lisa, for forgetting to highlight how the magic dispensation works for umbrellas!

[Fred Bloggs]

QDOS have always claimed they consider there to be a higher chance of investigation. Plus some accountants argue that even for a diirector an implicit contract of employment exists and therefore minimum wage applies.

They (QDOS) have lowered their minimum salary requirement to (IIRC) £6k. There are a couple of posts here from QDOS saying exactly this if you search for QDOS posting. I intend to do this from April 6th. I'm currently paying £10k salary but I now see no reason to do so.