How much salary do you take from your Ltd?

[Olly]

Quite a few IT Jobs probably get paid around NMW. Helpdesk. Low level technicians. Indian Subcontractors. Probably the majority of staff at PC World.

Errrrr...why's that relevant?

If you bill 100K a year it's because you have the skills and experience to earn 40 or 50 or more as a perm. I'm not sure any contractors at PC World bill 6 figures and do a permy equivalent role paying 4 figures.

I'm also not sure calling them "IT jobs" is wholly accurate either

[Weltchy]

Errrrr...why's that relevant?

If you bill 100K a year it's because you have the skills and experience to earn 40 or 50 or more as a perm. I'm not sure any contractors at PC World bill 6 figures and do a permy equivalent role paying 4 figures.

I'm also not sure calling them "IT jobs" is wholly accurate either

Its difficult to say what a fair salary is. The only amount we can point at is the NMW, therefore thats a starting point.

Looking at what we do, there are lots of reasons for employing a contractor. To me, one of the justifications is that you gain access to a highly skilled but expendable work force. If you take this as the primary reason for employing people like us, then from our standpoint, you cannot justify saying that you or I will bill for the entire year.

Taking this into account, a salary of £100k a year would be detrimental to our own businesses, therefore we have to set a salary at a much more reasonable rate.

You "could" argue that the maximum wage you can justify would be the amount your contract brings in over the specified term.

[facboy]

for what it's worth, my 'IR35 cover' guys won't cover you if it's under 10k, and prefer it over 15k. my understanding is that it's not about standing up to scrutiny, it's about avoiding it altogether. they are not keen for myco to be investigated (and neither am i, funnily enough), not because we don't believe we'd come out in the clear, but it's a hassle that you'd rather not deal with, and there's always the risk that you get a bum decision. paying the absolute minimum (below nmw) is apparently a flag that may increase the likelihood of investigation.

[moorfield]

Nixon Williams advised this (about the Minimum Wage - but I think it has some relevance to this discussion too) a few months ago.

We have previously advised that the National Minimum Wage applies to all Director’s (including those whom are also employees) where they are the sole fee generator for the company due to an implied contract of employment being in place and as such we advised to pay a salary that is at least at the national minimum wage. However, 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.

What does this mean for you?

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).

[Olly]

Have you ever asked them of any evidence of that?

I've asked here a few times and asked two accountants...none can provide any, even anecdotal or "he said, she said"

Whilst I can see the theory, and even subscribed to it a little by not paying myself bang on the limit but instead 7K I'm still sceptical it whether it makes any difference. For the sake of a grand (or more) I'll personally take the risk, so far I'm fairly confident my work has been as outside of IR35 as is the norm.

Had no idea it was mandatory to pay over 10K for IR35 insurance...interesting.

[Olly]

OK ...quick numbers for anyone interested

Difference between paying yourself £5715 and £6475 is £97.28 Employers NI and £83.60 Employees

So the extra £760 attracts 15.6% in NI deductions rather than 21% CT, it's bigger than I thought..unless I worked it out wrong.

[Sockpuppet]

I just use my personal allowance up plus about £500 to make sure I get my NI sorted (also to make it easy to get the tax free allowance from HMRC for online filing).

I have 3 contracts on the go at the same time though so I'm fairly confident I am outside of IR35.

If I was one contract every 2 years kind of contractor I'd think differently.

[The Wikir Man]

I have 3 contracts on the go at the same time though so I'm fairly confident I am outside of IR35.

You should know by now that IR35 is assessed on a contract-by-contract basis.

IIRC, PCG directors have an inside IR35 contract with the PCG running concurrently with their main work which tends to be outside IR35. No doubt mal will correct me if I am wrong.

[d000hg]

You should know by now that IR35 is assessed on a contract-by-contract basis.

That is true, but on the other hand multiple concurrent contracts is a common-sense way of saying "I am not an employee". In a tight case it makes it clearer you are a business not a person playing the Ltd company game.

[expat]

That is true, but on the other hand multiple concurrent contracts is a common-sense way of saying "I am not an employee".

Oh. Do HMRC use "common-sense"?