Dissatisfaction with accountant's advice

[Lambert Simnel]

Hi,

I’m having an issue with my accountant and I was hoping that I could get some confirmation on either her or my view, as well as suggestions on how to proceed if I’m unhappy with the advice I’m receiving.

The issue is associated with my intended salary for 2013/14. I’ve just completed my first year of contracting, and had paid myself a low salary (£8200) and supplemented this with quarterly dividends, the latter being based on how much retained profit I had in the company. So far, so good.

This year, when I said I intended to keep my salary at £8200, my accountant recommended that instead I increase it to £9620.24. Initially, their reasoning was that I needed a higher salary to qualify for the state pension. I challenged this, saying that my understanding was that my salary only needed to be higher than the NI Lower Earnings Limit for it to count as a qualifying year.

The accountant backed down on the qualifying year point, but then claimed it was “more tax efficient” to take their recommended salary – I can supply the (to me, spurious) figures they used to support this argument if that helps.

Firstly, please tell me that I’m not crazy, and the accountant is giving me duff advice. Or, alternatively, please could someone explain why paying myself so much above the NI Primary and Secondary Thresholds is “tax efficient” rather than paying the money through a dividend route?

My second ask is (presuming that I’m right that she’s wrong...) what should I do about the accountant? This is one of the major players in the space, I’m paying significant sums of money each month, and I’m currently convinced that the accountant is giving me incorrect advice.

Thanks for any advice.

[malvolio]

I assume you've allowed for the changes in the tax free allowance bandings for next year...?

[Project Monkey]

Difference of 1400 quid. Is it really worth the debate?

You're paying the accountant's for advise, but if you think you know better, you don't have to take that advice. At the end of the day, the risk is yours, not hers.

[TheFaQQer]

Difference of 1400 quid. Is it really worth the debate?

If they are wrong about the basics, then what else are they doing wrong?

[northernladuk]

If you do a search on here you will find plenty of threads from people asking how much to pay themselves and even between the accountants on this board there is a difference of opinion. Some say lowest possible, some say NI threshold, some say more. There is no hard and fast rule and the difference to you is minimal. I am with SJD who have over 11k contractors on their books so I am happy to listen to the arguments and they go with what they suggest to be honest.

It's not duff advice, it is a recommendation based on their view which varies between accountants. I certainly would not be thinking about bailing out of an accountant just on this issue.

[Project Monkey]

If they are wrong about the basics, then what else are they doing wrong?

If you're confident enough to do it yourself, why pay an accountant?

[TheFaQQer]

It's not duff advice, it is a recommendation based on their view which varies between accountants

Sounds like duff advice to me:

Initially, their reasoning was that I needed a higher salary to qualify for the state pension.

Lambert - ask them to provide an explanation of why it is more tax efficient to pay a different salary than the one you suggest. Once you have that explanation, then you can work out whether their advice is any good or not.

[Clare@InTouch]

I'd be interested to see the logic behind the £9,620.24.

Ultimately it's up to you, but you should hear the reasons behind each argument before you decide. Some people like the £7,696 because it means no tax or NI whilst still qualifying for state pension, whilst other people feel more comfy going for a £12,000 National Minimum Wage level - there's no legal reason to do so as NMW doesn't apply to a director, but it's not the bare minimum so there is the theory that it helps keep Hector at bay.

Your accountant should be able to explain each level and the tax & NI implications of both - in a clear concise way that makes sense. As NLUK says though, find out why they are saying what they saying first

[TheFaQQer]

As NLUK says though, find out why they are saying what they saying first

<ahem>

Lambert - ask them to provide an explanation of why it is more tax efficient to pay a different salary than the one you suggest. Once you have that explanation, then you can work out whether their advice is any good or not.

[northernladuk]

<ahem>

And that, folks, is the end of the first lesson in how not treat your customers