Ltd salary & expenses when out of contract

[Kess]

By coincidence I phoned my accountant (NW) today to ask their advice on what to do while on the bench. The chap I spoke to recommended taking NO salary while not actively working - just use dividends.

I was a bit surprised as I thought I was effectively still working (i.e. employed by my own company) so ought to continue taking a salary to keep the tax-man happy.

[cojak]

By coincidence I phoned my accountant (NW) today to ask their advice on what to do while on the bench. The chap I spoke to recommended taking NO salary while not actively working - just use dividends.

I was a bit surprised as I thought I was effectively still working (i.e. employed by my own company) so ought to continue taking a salary to keep the tax-man happy.

Hmm - I'm not sure about that. I'm with Mustang in that I'm still employed by MyCo, just in a different role (Sales, Development, etc...)

Can Phil or Simon comment on this?

[ctdctd]

I pay myself minimum wage when in contract but after a month on the bench will drop down to a three day week which is just above the threshold to keep the National Insurance going for the theoretical state pension. Stops me paying much personal income tax or NI on already taxed retained profits if I stay benched for long.

If I had the full 30 years contributions for a full state pension (Not long) I would stop salary and take as dividend instead.

[Grinder]

By coincidence I phoned my accountant (NW) today to ask their advice on what to do while on the bench. The chap I spoke to recommended taking NO salary while not actively working - just use dividends.

That's bollox for sure.

[PhilAtBFCA]

Salary whilst on the bench

Kess

I think its difficult to give any other answer than the one you have been given without many more details of your personal income, company reserves and expectation of time on the bench.

Both not taking a salary, and taking a salary could be equally valid.

I think that if you took a salary it would be the minimum you could effectively take without paying any tax £6475, or alternatively the NI threshold salary of £5720 ( these are annual salary's ).

There does seem little point in paying Minimum Wage salary which will cost you personally at least £1000 a year in comparison to the other salaries. For a Company without sales for a period of time, that may be important.

A perfectly valid alternative would be to have no salary whilst there is no sales, saving the company money, you could then pay yourself a dividend from reserves.

Accurate management accounts would be useful for you at this point so you can plan out your finances carefully during time on the bench.

Hope that helps

Phil

[Kess]

That's bollox for sure.

I'm not so sure. I did wonder if the chap who happened to answer my call to NW got his facts wrong, so I went ahead and sent my monthly paperwork (bank statement and expenses claim) to them together with a note explaining there were no invoices this month, and waited to see what would happen. Today I had a phone call from a different person at NW asking whether I wanted to run the payroll for this month since I hadn't worked, and they also recommended NOT taking any salary to achieve maximum tax efficiency.

So I took their advice.

Anyway, the situation is academic now as I've got another contract so the invoices will start up again next month and all I'll have done is to skip one month's salary.

[PhilAtBFCA]

Salary on the bench

Hi Kess

I think your "story" has been an interesting example here. I think what it shows is that it is your annual salary that is important, in the contest on your whole years income, and the income of your company.

For instance if you stopped salary for one month, or two, or three, you may decide to pay yourself more in the months following, or indeed less. But the importance will be on your total annual salary taken from your company which you can decide based on your personal tax planning.

It has also showed that when you are "on the bench" the company continues to trade and then you make a decision based on what happens in the future i.e. another contract so continue trading, or permie perhaps so consider closure, or continue on the bench and keep company until the money runs out and then look at options again.

So thanks for your posts ! ( And congratulations on the new contract :-) )

Phil

[Kess]

Phil,

Thanks for the comments. Would I be right in saying that had I been idle for several months then it might be best to take some minimal salary in order to ensure I earn enough to meet the annual threshold for the Class 1 NI contribution (about £5,000 I believe)?

[PhilAtBFCA]

Kess

I think thats a difficult one without looking at the company accounts, your personal tax position, family finances etc...

But if it were feasible within the contect of everything else then the annual salary between £5720 and £6475 would probably have been a very tax efficient option, see here for how to come to that decision.

Hope that gives you some form of answer !

Phil