Salary

[contractor2006]

I have heard that you should pay yourself a salary of only £5k per year as the director of your own limited company as this amount will be tax free. However, surely it is illegal to pay such a small amount as you have to at least pay the minimum wage which is more like £8k per year. I know if you are an inactive director you do not have to comply to the minimum wage but surely I cannot claim to be inactive if i am the only person in the company?

[Xena]

Just don't bother paying tax. Seems to work for most of the overseas visitors here.

[ASB]

However, surely it is illegal to pay such a small amount as you have to at least pay the minimum wage which is more like £8k per year.

Two points:-

1) Look at the rules for directors on the DTI website or google. The view is NMW doesn't apply to directors with no contract of employment.
2) Even if it does who's going to prosecute? The IR (currently) are not able to say "you haven't complied with the NMW legislation so we will prosecute". They have to have a complaint before they can take any action.

[DaveB]

The main thing to worry about is the IR seeing your dividends as disguised salary. Not paying yourself a salary and awarding whopping divies every month raises your profile when it comes to your tax returns.

No guarentee it will attract attention but is it really worth the risk?

[contractor2006]

salary

Two points:-

1) Look at the rules for directors on the DTI website or google. The view is NMW doesn't apply to directors with no contract of employment.
2) Even if it does who's going to prosecute? The IR (currently) are not able to say "you haven't complied with the NMW legislation so we will prosecute". They have to have a complaint before they can take any action.

Re: Point 1 - But surely it is also illegal not to have a contract of employment if you are in effect an employee of that company?
Re: Point 2 - so what your saying is that the IR would have to make a complaint and then you would have to comply from that day forward and nothing could come back on you from previous months/years?

[swamp]

Re: Point 1 - But surely it is also illegal not to have a contract of employment if you are in effect an employee of that company?
Re: Point 2 - so what your saying is that the IR would have to make a complaint and then you would have to comply from that day forward and nothing could come back on you from previous months/years?

1. No.

2. you're

[ASB]

Re: Point 1 - But surely it is also illegal not to have a contract of employment if you are in effect an employee of that company?
Re: Point 2 - so what your saying is that the IR would have to make a complaint and then you would have to comply from that day forward and nothing could come back on you from previous months/years?

1) No. you are an officer. It's all on the DTI website.

http://www.dti.gov.uk/er/nmw/detailed_guide_2004.pdf

Section 22 is quite clear.

2) No thats not what I am saying. I didn't explain it at all well. [Completely wrong may be an accurate description ]

The IR are the enforcement body, they can demand records etc. They can issue an enforcement notice. They can issue a penalty notice. They can evenutally take you to court. Any settlement will go back to the start of the breach. Since you are not a worker under the meaning of the act they are not going to get very far.

If you do have workers you are not paying NMW to then yes they can take effective action.

If as a director you did have a contract of employment then it is conceivable that they could take YourCo to court on your behalf and prosecute the CoSec.

Section 219 on of the link I posted.

There is also the question - for an officer - of what work is done as a consequence of the contract of employment and what is done as a consequence of being an officer of the company (most will be the former).