SJD v NW advice = confusion

[mudskipper]

...

So, ours is that we advise that directors take the NMW on the basis that this could prevent any future attacks by the Govt. Let’s not forget that “Income Shifting” was based on law dating back decades and it was perfectly accepted wisdom at the time to split shareholdings and therefore dividends – even the Govt advised it!

...

Quote from my SJD accountant when I joined in late 2009.

"We used to recommend the National Minimum Wage, which is currently £12,240 per annum. However, as the corporation tax rate has increased (now 21% but will increase to 22%) and the 10% tax band disappeared for personal tax, we decided to reduce our recommended level for salary to £7500. It is above the NI and tax threshold, so some tax and NI is payable to keep HMRC happy"

Why are some offices recommending NMW and some £7,500 ?

[rightfluff]

Quote from my SJD accountant when I joined in late 2009.

"We used to recommend the National Minimum Wage, which is currently £12,240 per annum. However, as the corporation tax rate has increased (now 21% but will increase to 22%) and the 10% tax band disappeared for personal tax, we decided to reduce our recommended level for salary to £7500. It is above the NI and tax threshold, so some tax and NI is payable to keep HMRC happy"

Why are some offices recommending NMW and some £7,500 ?

I would like to know that as well. Seems like we're all getting different advice from SJD.

[pastalista]

'So, ours is that we advise that directors take the NMW on the basis that this could prevent any future attacks by the Govt.' - so why have I been advised by SJD to pay myself £12K pa? NMW is alot lower.


'Finally, for many years on this forum I was accused of being too conservative by some for suggesting that EBT’s and all sorts of “exotic” tax planning schemes were fraught with potential problems – only with hindsight can we now see that I, along with many, many other professionals were right – this may or may not be true with the advice on NMW and Income shifting in the future, but I’d much rather have our clients aware of the risks as we see them, than to lead them into a false sense of security.'

If it's legal to do these now then why not go ahead with them in the mean time? When they are made illegal simply change from EBT to LTD or stop incoming shifting.

I think the advice comes from, as he puts it, a conservative place. It is probably not unreasonable given Hector / the Government's (the last one anyway, the jury is out on this one) propensity to apply the rules retrospectively.

For example, a lot of scheme providers that had the "employee / EBT" arrangement are now switching to "sole trader / benefit trust" arrangement on the basis that the 09/12/10 announcement was aimed at "employees". Reading the announcement (which I accept is not the final legislation) it would appear that it is aimed at these or "any similar setup" and so the sole trader arrangement won't wash with Hector. It might (and we don't know yet because we haven't seen the actual legislation) be legal in that the setup works, but not for avoidance purposes. The people transferring to these schemes may therefore get hit at a later date with retrospective taxes because their setups "didn't comply with the spirit" of the law.

I think, therefore, that he is saying he would prefer to advise against their use, safe in the knowledge that his advice might be ignored, but at least he gave it.

Accountants are like everybody else in life - differing approaches to risk. If you are naturally more inclined to accept higher levels of risk, then you need to find an accountant with a similar risk appetite.

Pastalista

[jmo21]

'Finally, for many years on this forum I was accused of being too conservative by some for suggesting that EBT’s and all sorts of “exotic” tax planning schemes were fraught with potential problems – only with hindsight can we now see that I, along with many, many other professionals were right – this may or may not be true with the advice on NMW and Income shifting in the future, but I’d much rather have our clients aware of the risks as we see them, than to lead them into a false sense of security.'

If it's legal to do these now then why not go ahead with them in the mean time? When they are made illegal simply change from EBT to LTD or stop incoming shifting.

Oh dear.

The point is HMRC can retrospectively kick you in the danglies.

[rightfluff]

Oh dear.

The point is HMRC can retrospectively kick you in the danglies.

can they? Really?
Would like to see them try. It was legal but now it's not but we're going to go back in time when it was legal and say that was illegal. Cough up Pedro. I don't think so Hectro see you in court. Now where's my PCG plus contract.

[jmo21]

can they? Really?
Would like to see them try. It was legal but now it's not but we're going to go back in time when it was legal and say that was illegal. Cough up Pedro. I don't think so Hectro see you in court. Now where's my PCG plus contract.

see pastalista's response for more detail.

[TykeMerc]

I would like to know that as well. Seems like we're all getting different advice from SJD.

To be fair I'd expect my accountant to give advice based to my personal and business circumstances as no one size fits all so advice is likely to vary.

[rightfluff]

To be fair I'd expect my accountant to give advice based to my personal and business circumstances as no one size fits all so advice is likely to vary.

True. but alot of us have the same basic setup. Take a salary + divi. Pretty basic. Why would one person be advised to take a salary of NMW, another of £7.5K and another of £12K?

[TykeMerc]

True. but alot of us have the same basic setup. Take a salary + divi. Pretty basic. Why would one person be advised to take a salary of NMW, another of £7.5K and another of £12K?

I couldn't speculate

I'm not with SJD and I take a smaller salary than £7,000 on my accountants advice.

[Nixon Williams]

Our advise is currently a salary of £5,715 is the most efficient, due to the threshold changes in April, this will increase to £7,072 from 6th April 2011. Effectively this will work out at £589 per month.

(Note-although the employee NIC threshold will increase to £7,225, a salary at this level will mean some employer's NIC being payable, the very small saving is probably not worth the extra work to pay this over each quarter!)

NMW is currently £5.93 per hour so based on a normal working week, this is were the annual salary of around £12,000 comes from. Paying this higher salary means a net extra tax/NIC cost of about £1,000 per annum.

The quote below and the link to the HMRC website explains the above in greatere detail for those who are interested.

The DTI have told us that if there is no written employment contract or other evidence of an intention to create an employer/ worker relationship they will not seek to contend that there is an unwritten or implied employment relationship between a director and his company. As the Inland Revenue administers NMW as agents for the DTI they will adopt this policy also. The DTI are aware that this position has been represented in some quarters as a change in policy by the Government. But they point out that the Government has always made clear that directors would only be covered by the law if they were also workers as defined by the Act and that remains the case.

HM Revenue & Customs: Tax Bulletin Issue 50

This is clearly an area for each client to decide on their own, of course in consultation with their accountant. We have clients who pay £5715 and some much more, it is their choice.

We do not usually suggest salaries for non-working spouses, although currently there is an option in some circumstances for some dividends to be paid, each case is very different.

Just for the record, we have always warned against using off shore schemes, the old saying "If it looks too good to be true, it usually is" is always worth remembering.

Alan