Salary paid to yourself.....

[DaveB]

Would be interested to see what the main contractor accountants say/recommend about this?

From memory, the last time this was discussed it was a bout a 50/50 split

[SneakySimon]

Rate

I am with SJD and they recommend I pay £11.5k and therefore £1,928 in PAYE / NI.

Clearly no clear answer as to what to pay / not pay but I then again HMRC are never going to say so its best guess.

[Martin at NixonWilliams]

Would be interested to see what the main contractor accountants say/recommend about this?

Hi Psychocandy,

Although I don't know your full circumstances I would probably recommend a salary in line with the National Insurance threshold of £7,072 for this tax year assuming you are outside IR35.

PM me if you want to discuss this in a bit more detail.

Martin

[Wanderer]

For instance, current account says, nah, pay £7K a year. Another accountant says £10K because paying NMW looks uncommercial in the eyes of the HMRC.

Yeah, but if your company turnover is £100k and you are paying £10k (or £20k or £30k) as salary then that's hardly a commercial salary is it?

The law specifically allows for directors to pay themselves whatever they want to, so go right ahead, minimise the salary to £7k, take the rest as dividends and don't go feeling guilty that you are ripping off the tax system. The tax system was deliberately designed this way so use it how it was intended because this is what thousands of other small businesses do.

As for IR35, an IR35 review is an IR35 review. They aren't gonna say awww, he took a bit more salary so he could pay a grand extra in tax, let's go easy on him. You are much better to put that money towards getting a good tax lawyer to fight your case when/if the IR35 inspectors come knocking....

[JoJoGabor]

You are much better to put that money towards getting a good tax lawyer to fight your case when/if the IR35 inspectors come knocking....

Good point, never thought about it like this. I may reduce my salary now to the £7k and do this, is there anything HMRC may see as suspicious about reducing a directors salary?

[Greg@CapitalCity]

From a tax perspective

From a tax perspective, you should be looking to use up as much of your personal allowance as you can by paying a salary from your business. The optimum point for 2011/12 is about £7,200 a year (so a nice round £600 a month in salary). At this level, you will pay £17.66 in employers NI for the year.

This is what we suggest to our clients, but they are free to make up their own mind. Some put £12,000 a year through their business as salary, others put £20,000 a year through as salary. No one will tell you what you must use psychocandy, its like telling you what your favourite colour is. Luckily the decision can be straightforward for you;
(1) If you are happy with your IR35 status (maybe even have Tax Investigation insurance) then go for the £7,200 option (or thereabouts). The HMRC know you can pay yourself whatever you like in salary, and so long as you are doing it correctly, no problem;
(2) If you are hazy on your IR35 status, then go for a higher salary. That way if you are found to be caught by it, then you will already have been making some PAYE/NI payments.

Some accountants say a higher salary keeps you off the Compliance Visit radar - I don't agree with this, but then its a personal view. Regardless, I don't think any contractor should set their salary at an 'under the radar' level (whatever that is?) because the point is you should be concentrating on working compliantly, not doing what you can to avoid being caught. Spend your time ensuring you avoid IR35 and structure your tax affairs accordingly - that's your best strategy.

And just to confirm the numbers (you were about right psychocandy);
£7,200 annual salary, £17.66 NI (employers) due
£12,000 annual salary, £904 PAYE, £573 NI (employees), £680 NI (employers), £1,078 Corporation tax (SAVING)
So overall you pay about £1,060 more in taxes by paying a salary of £12,000 vs £7,200.

[Wanderer]

£7,200 annual salary, £17.66 NI (employers) due

I prefer to keep the salary at £7k, so I pay nothing in PAYE/NI. No payments to make = one less thing to forget to do and get fined for.

[psychocandy]

Think wanderer has got it spot on here. I dont understand how minimum wage comes into it because directors arent bound by this. Also, I dont see how 12K is much different that 7K as a salary for a company earning possibly £100K or more. Neither is commercially correct surely so why pay the extra in NI?

Also, not sure why IR35 comes into it. If you get caught you;re going to have to stump up the rest in NI/tax anyway even if you're paying 12K.

Done some research and InTouch, and some of the others recommend 12K, but Nixon Williams 7K.

GCC - Just out of interest, why do you suggest paying £17.66? Is it because its a round figure and less hassle (and its only £17) or because theres some value in paying some NI? I always thought that a salary of 5K or so implied payment of your stamp anyway regardless of whether you actually paid NI?

Seems a fair chunk extra of £1000 in extra taxes. How much is complete IR35 insurance these days? (i.e. the one that even pays for your extra tax if you get caught). Surely cheaper than £1000 - I'd rather go for this.

[Robot]

Seems like accountants recommend this salary or that salary, surely the accountants shouldn't make any recommendations on salary, yes they can talk about NIC savings etc, but I don't think they should recommend a certain salary.

This is something that director should set him/herself.

IMHO

[Greg@CapitalCity]

GCC - Just out of interest, why do you suggest paying £17.66? Is it because its a round figure and less hassle (and its only £17) or because theres some value in paying some NI? I always thought that a salary of 5K or so implied payment of your stamp anyway regardless of whether you actually paid NI?

Seems a fair chunk extra of £1000 in extra taxes. How much is complete IR35 insurance these days? (i.e. the one that even pays for your extra tax if you get caught). Surely cheaper than £1000 - I'd rather go for this.

Its a nice round figure (and yes, its only £17). You are right about the year counting towards your state pension - you need an annual salary of £5,304 or greater to get this.