Dissatisfaction with accountant's advice

[Jessica@WhiteFieldTax]

Could you give a specific example where paying salary above £7,748 is more efficient for the 2013-14 tax year?

For a 40% taxpayer over state retirement age? Each extra £ of salary up to PA level incurs employers NI, but saves tax at the differential between Higher Rate and Small Company CT, assuming profits would otherwise be extracted as dividend.

[Notascooby]

I'm getting the same advice of £9440 and I think they're talking crap....

I've asked for a breakdown as to why £9440 is better than £7696.

[LisaContractorUmbrella]

I'm getting the same advice of £9440 and I think they're talking crap....

I've asked for a breakdown as to why £9440 is better than £7696.

Presumably because at £9440 you will be making a tax contribution on your basic salary - just in line with tax threshold next year isn't it?

[Jessica@WhiteFieldTax]

I'm getting the same advice of £9440 and I think they're talking crap....

I've asked for a breakdown as to why £9440 is better than £7696.

In most cases, in pound note terms, £7,696 works better.

However its an art not a science, and really your accountant should **advise** and you **decide**. We recommend £12k to our clients, but will happily take instructions higher or lower as they wish.

[Notascooby]

OK advice is

There would be no PAYE Tax or NI payments to make on a £7,696 salary, so it is efficient in the respect that neither yourself or the company will pay any Tax/NI to HMRC.

With the £9,350 net salary, there would be £33.25 PAYE Tax due, £222.99 in Employee’s NI and £263.61 Employer’s NI due. So with paying the extra £519.85 to HMRC, you are able to earn an extra £1,134.

Sold to the man without a scooby.

[Jessica@WhiteFieldTax]

OK advice is

There would be no PAYE Tax or NI payments to make on a £7,696 salary, so it is efficient in the respect that neither yourself or the company will pay any Tax/NI to HMRC.

With the £9,350 net salary, there would be £33.25 PAYE Tax due, £222.99 in Employee’s NI and £263.61 Employer’s NI due. So with paying the extra £519.85 to HMRC, you are able to earn an extra £1,134.

Sold to the man without a scooby.

But you need to compare that to the cost of exacting a dividend?

[Contreras]

I'm getting the same advice of £9440 and I think they're talking crap....

I've asked for a breakdown as to why £9440 is better than £7696.

OK advice is

There would be no PAYE Tax or NI payments to make on a £7,696 salary, so it is efficient in the respect that neither yourself or the company will pay any Tax/NI to HMRC.

With the £9,350 net salary, there would be £33.25 PAYE Tax due, £222.99 in Employee’s NI and £263.61 Employer’s NI due. So with paying the extra £519.85 to HMRC, you are able to earn an extra £1,134.

Sold to the man without a scooby.

Thanks for sharing the numbers. Although £9350 net doesn't tally with the £9440 gross mentioned originally and there is still something missing in the rationale. Either specific to your circumstances or just plain wrong.

But you need to compare that to the cost of exacting a dividend?

OK let's see:

Turnover         A                      £9,869.85     £9,869.85
Gross salary     B                      £7,696.00     £9,606.24
Employers NI     C = (B-7696) * 13.8%       £0.00       £263.61
Employees NI     D = (B-7755) * 12%         £0.00       £222.15
Income Tax       E = (B-9440) * 20%         £0.00        £33.25
Corporation Tax  F = (A-B-C) * 20%        £434.77         £0.00
Net salary       G = (B-D-E)            £7,696.00     £9,350.84
Net dividends    H = (A-B-C-F)          £1,739.08         £0.00
Net income       I = (G+H)              £9,435.08     £9,350.84
Retained profit  J = (A-B-C-F-H)            £0.00         £0.00

So on face value it looks like the advice is costing you an extra £84 in tax + NI. Not what you expected?

OK if you like paying tax but then why stop there when you could pay salary of £10k, £12k, etc.?

I maintain that £7755 is the optimum salary, but quite happy for others to pay more of course.

[Platypus]

So on face value it looks like the advice is costing you an extra £84 in tax + NI. Not what you expected?

It's a long time since I wrote my own spreadsheet for this, but I do recall that employee's NI has a threshold (the primary threshold?) and your figures don't seem to be taking it into account, so your figure for ER's NI is too high.

[Jessica@WhiteFieldTax]

Not what you expected?

Its what I would expect in most circumstances, but to asses it properly you need to factor in marginal rates of Income Tax.

EG if someone was just on Higher Rate threshold, every extra £of net dividend is 25% tax.

By contrast take that as salary in the range £7,696 to £9,440 then you potentially use wasted PA, saving you 40%, for a 26% NI cost.

However if there is other income to use the PA, then not necessary.

[Notascooby]

I smash the 40% rate, average about 60K divs per year