Minimum Wage - New Guidelines

[moorfield]

Have we done the Nixon Williams email yet?

HMRC have updated their guidance stating that the National Minimum Wage does not apply to Directors where there is no written contract of employment i.e. they will not seek to enforce an oral or implied contract of employment.

Assuming that you do not have a written contact of employment in place between yourself and your Company you are free to pay yourself any salary you so choose and not have to worry about the National Minimum Wage regulations. This opens the door to paying a salary up to the Earnings Threshold to avoid paying any National Insurance on your salary whilst still earning a qualifying year for state pension purposes. For 2009/10 this equates to a salary of £5715 per annum (pro rata if you only become a director part way through the tax year).

[BolshieBastard]

My co hasnt bothered with the NMW since its inception. Im surprised if any contractor has tbh.

[Andy2]

I am with SJD and they advised to pay NMW since most of their client do that.
As a result I have been paying approx £1000 extra tax every year
If I change now will it be red glag to hmrc?

[Sally BFCA]

We do not advise NMW unless the client has a specific reason for doing so, for example if they are claiming working tax credits or other state benefits.

[Maslins]

HMRC have updated their guidance stating that the National Minimum Wage does not apply to Directors where there is no written contract of employment i.e. they will not seek to enforce an oral or implied contract of employment.

That's always been fine. Perhaps HMRC have simply now more clearly clarified it is ok.

[Moscow Mule]

I am with SJD and they advised to pay NMW since most of their client do that.
As a result I have been paying approx £1000 extra tax every year
If I change now will it be red glag to hmrc?

I am with SJD and they have advised to pay less than NMW for as long as I've been with them.

[Jeebo72]

I am with SJD and they advised to pay NMW since most of their client do that.
As a result I have been paying approx £1000 extra tax every year
If I change now will it be red glag to hmrc?

Yeah, me too ... think it's time to go ask them ...

[blacjac]

We do not advise NMW unless the client has a specific reason for doing so, for example if they are claiming working tax credits or other state benefits.

How does claiming working tax credits affect a directr being paid NMW?

[Lewis]

Have we done the Nixon Williams email yet?

I've always worked on the assumption that directors (with no written contract) are not covered by NMW but have taken on board QDOS' advice from years back that the bare minimum salary carries more risk of investigation and so have paid myself closer to the NMW than the £5700-ish minimum (if you want a state pension).

So in the past I've just ignored NWs letters on NMW when the warned me about it increasing etc.. It seems now their thinking has changed following some HMRC clarification, which sounds reasonable enough to me.

I phoned QDOS after the NW letter so see if they still thought a low salary carried a higher risk of investigation and they were fairly non-committal, saying (QDOS - I hope you don't mind me repeating this) there is no hard and fast rule but that in general the higher the salary the better (for numerous reasons, e.g. less for HMRC to gain by investigating etc..).

They certainly didn't say to not pay myself £5700 (although the excess on my policy will be a fraction higher) but I was left with the impression that if I could pay more it might be better. It was very much these are the pros and cons the decsion is down to you. So for now at least I'm going to stick with my 'almost' NMW.

[Maslins]

So in the past I've just ignored NWs letters on NMW when the warned me about it increasing

Were their letters simply pointing out that NMW had changed (in case you employed a part time cleaner/secretary/whatever), or were they stating that as a contractor you had to pay the new increased NMW? Quite probably it was the former.

there is no hard and fast rule but that in general the higher the salary the better (for numerous reasons, e.g. less for HMRC to gain by investigating etc..).

If you're a contractor bringing in £50-100k per year, and are paying a NMW salary of ~£10k, I don't really see that's any safer than just paying £5.7k. The difference is fairly pitiful, and HMRC will know full well that ~£10k is not a market salary for what you do.

If you were to pay, say, £30k as a salary, then you might be on safer ground, as that quite possibly would be a suitable permie salary.

Also, on the basis you're outside IR35, you can legally pay yourself whatever you want as salary and dividend, so I don't see why you should voluntarily do something which leads to you paying more tax just to keep HMRC on your side a bit more.

So for now at least I'm going to stick with my 'almost' NMW.

Lol...the NMW is just that, a minimum. I appreciate what you're saying, but I can't imagine it standing up too well in court if you said you were paying the little Phillipino boy "almost" the NMW!