SJD v NW advice = confusion

[malvolio]

SJD are consistent in not recommending minimum salary, although offices seem to vary about the actual suggestion. Their logic is based on the NMW level being used to establish other rules, which makes some kind of sense, but until those rules are defined there's actually little reason not to go for lowest possible salary commensurate with keeping up your NI payments.

As for dividends for She Who Must Be Obeyed, there's no reason on earth not to give her a 50% share in the company if she's not working. Arctic saw to that, and I suspect SJD are fully aware of that. If they are suggesting you don't do so, there must be a reason or your local office are totally incompetent. I suggest you find out which.

But at the end of the day, you are paying them, so what you say goes. They have given you their informed, professional advice, it's up to you whether or not you take it.

[Waldorf]

Currently with SJD. Have been for a while. But after reading numerous threads I'm confused.
Also not happy with SJD over the last few months. Spotted basic mistakes in VAT and Personal Tax returns.
So I phoned Nixon Williams. Lady there seemed very much on the ball.
I told her that SJD have recommended I pay myself £12K gross pa + rest in divi. up to higher rate tax limit. SJD have known for a while that my wife isn't working but haven't said anything about paying her a wage or divi. When I asked again they advised paying her £500pm for admin work but no divis.

Lady at NW didn't understand why I'm paying myself such a high wage of 12K. Should be around £5.8K pa.
She said it's fine to pay the wife a divi. but not a wage. She said HMRC have said that admin for a small LTD is around 2hrs pm at a rate of £10 ph so it's not worth doing.

So my questions are:
1, how can two big accountancy firms have different views.
2, a few people have said it's best to pay around the £10K-12K pa to stay off 'the HMRC' radar. Is this true?
3, what are other people's current set up

I'm fed up of filling in the SJD spreadsheet and having to check their work so I'm moving anyway.

NW are cheaper as well.

http://www.nixonwilliams.com/LimitedCompanyGuide.pdf

Take a look at pages 30 & 31, they give some detail on their reasons, although they seem to say that the decision is yours.

I pay myself £5715, although my account manager at NW has told me that this limit can go up in the new tax year, I think they mentioned just above £7000.

I can recommend NW by the way, very happy and not as expensive.

[ratewhore]

I'm fed up of filling in the SJD spreadsheet and having to check their work so I'm moving anyway.

I remember that before I sacked them off. If I made an error in the spreadsheet they would email it back to me telling me what the error was and telling me to put it right then send it back.

Not the only example of the poor service I received but it did make me wonder...

[malvolio]

I remember that before I sacked them off. If I made an error in the spreadsheet they would email it back to me telling me what the error was and telling me to put it right then send it back.

Not the only example of the poor service I received but it did make me wonder...

That would be because you are the company director and it's your responsibility to keep the records straight and accurate. If they do it, they fall foul of the MSC regs and all your income becomes taxable as earned income

So who's the smartarse now?

[stek]

As an accountant in a previous life - I well remember the tenet 'dividends are a reward for risk' - as a contractor is that really the case?

Where is the risk? Other than having a few months off there is no risk as in investing/gambling in a real business.

Is there?

[Wanderer]

SJD are consistent in not recommending minimum salary, although offices seem to vary about the actual suggestion. Their logic is based on the NMW level being used to establish other rules, which makes some kind of sense, but until those rules are defined there's actually little reason not to go for lowest possible salary commensurate with keeping up your NI payments.

I agree. If a company is earning fees of ~100k/year with operating expenses running at about 5-10% then does it really make a difference if the director takes a salary of £6k or £12k per year? Either way it's patently obvious that the director isn't taking a "fair market salary". I'd say be hung as a sheep for a lamb and just go with the absolute minimum salary.

As for dividends for She Who Must Be Obeyed, there's no reason on earth not to give her a 50% share in the company if she's not working. Arctic saw to that, and I suspect SJD are fully aware of that. If they are suggesting you don't do so, there must be a reason or your local office are totally incompetent. I suggest you find out which. But at the end of the day, you are paying them, so what you say goes. They have given you their informed, professional advice, it's up to you whether or not you take it.

SJD said: "we would not advise issuing shares to a non income generating spouse as this may be regarded as income shifting by HMRC".

I challenged this advice based on the Arctic systems judgement and SJD said: "The Artic case was won on a very specific set of circumstances and was case law rather than statute"

I also pointed to this press release which reads in part:

"The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax - known as income shifting. The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review."

I read this to say that the government is aware of income shifting, that there is no existing legislation to prevent it and that they have decided not to legislate to prevent it.

SJD said: "Yes this is correct that the legislation was going to be announced in the 08/09 budget but was put off due to the current climate, however this could be announced in the next budget and be implemented retrospectively, which is why SJD do not recommend shares being issued to a spouse."

Now people will think that there must be something complex that I'm not mentioning here but as far as I can see my tax affairs aren't complex, I have a wife who doesn't work and we have no other income. Why would SJD be so steadfast in advising against income splitting?

[escapeUK]

http://www.nixonwilliams.com/LimitedCompanyGuide.pdf

Take a look at pages 30 & 31, they give some detail on their reasons, although they seem to say that the decision is yours.

I pay myself £5715, although my account manager at NW has told me that this limit can go up in the new tax year, I think they mentioned just above £7000.

I can recommend NW by the way, very happy and not as expensive.

A pay myself £5715. To others, rather than paying £1024 a year in the hope they dont inspect you, wouldnt it be much cheaper to use that money to pay for either pcg and or IR35 insurance?

[Fred Bloggs]

I agree. If a company is earning fees of ~100k/year with operating expenses running at about 5-10% then does it really make a difference if the director takes a salary of £6k or £12k per year? Either way it's patently obvious that the director isn't taking a "fair market salary". I'd say be hung as a sheep for a lamb and just go with the absolute minimum salary.



SJD said: "we would not advise issuing shares to a non income generating spouse as this may be regarded as income shifting by HMRC".

I challenged this advice based on the Arctic systems judgement and SJD said: "The Artic case was won on a very specific set of circumstances and was case law rather than statute"

I also pointed to this press release which reads in part:

"The Government firmly believes it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax - known as income shifting. The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review."

I read this to say that the government is aware of income shifting, that there is no existing legislation to prevent it and that they have decided not to legislate to prevent it.

SJD said: "Yes this is correct that the legislation was going to be announced in the 08/09 budget but was put off due to the current climate, however this could be announced in the next budget and be implemented retrospectively, which is why SJD do not recommend shares being issued to a spouse."

Now people will think that there must be something complex that I'm not mentioning here but as far as I can see my tax affairs aren't complex, I have a wife who doesn't work and we have no other income. Why would SJD be so steadfast in advising against income splitting?

Sorry, but I think that is terrible "advice".

[SueEllen]

As an accountant in a previous life - I well remember the tenet 'dividends are a reward for risk' - as a contractor is that really the case?

Where is the risk? Other than having a few months off there is no risk as in investing/gambling in a real business.

Is there?

For starters I can think of:
1. If the client (company or agency) you are working through goes bust without paying you. As an employee if the company you are working for goes bust the government pays you the redundancy/wages you are owed. As a contractor you are on the list of creditors.

2. The fact that there is no mutuality of obligation i.e. lots of contracts have it that the client can get rid of you immediately for a number of reasons. As an employee the company who takes you on has to give you anything from one week to one months notice depending on the time you have worked for them and there is a statutory amount if nothing is put down in the employment contract.

3. The fact that you have to indemnify the work your company or you provide. If you work on live systems then this is a significant risk. Employees never have to do this. The most they can be done for is gross misconduct then sacked however they have legal redress so if the employer didn't provide adequate training then it's the employer who gets in trouble. With a contractor they will be either after you to fix it or contacting you to pay for the damage caused.

If you really cannot think of the difference between being a contractor and being an employee then maybe you should go back to being an employee as you are likely to get yourself in hot water.

[SueEllen]

Now people will think that there must be something complex that I'm not mentioning here but as far as I can see my tax affairs aren't complex, I have a wife who doesn't work and we have no other income. Why would SJD be so steadfast in advising against income splitting?

Probably because it's easier for them.

I suggest you just find another accountant who acts legally but has views more inline with yours and can explain things logically.

If you talk to any lawyer they would point out case law is used lots of times in making their decisions, which is why they advise you the way they do.