2014 Salary - £10K it is

[TheCyclingProgrammer]

Repost of the link to my spreadsheet, for those who missed it:
https://docs.google.com/a/lukeredpat...rive_web#gid=0

Gives you a comparison of various salary amounts (including NMW-ish) showing indeed, that £10k is optimum and now we've had confirmation of how the employers NI allowance works. I'm awaiting final confirmation from my accountant but looks like I will indeed be going down the £10k route.

Edit: on balance, £10k might not be the most optimal salary for me due to my share split, so something to consider for those who have another shareholder in the business.

With my 75%/25% split, combined take home for both of us on same salary of this year is £7752 + (max net. dividend for me of £30701 / 0.75 = max net dividend for both of us of £40934) = £48686.

With a £10k salary, this not only reduces my max net dividend but partners too, proportionally, so it works out as (£10k - 245.28 NI) + (£28678.50 / 0.75 = £38238) = £47993. £693 less overall. Even after accounting for the extra £200 or so in saving to YourCo that's still a couple of hundred quid. OK, it's not going to break the bank. But if you have a 50/50 split as is common this will have an even bigger impact on you (well, maybe not you personally, it's your spouses personal income that will reduce).

So things aren't always straightforward!

[northernladuk]

Repost of the link to my spreadsheet, for those who missed it:
https://docs.google.com/a/lukeredpat...rive_web#gid=0

Gives you a comparison of various salary amounts (including NMW-ish) showing indeed, that £10k is optimum and now we've had confirmation of how the employers NI allowance works. I'm awaiting final confirmation from my accountant but looks like I will indeed be going down the £10k route.

I am going to pay myself 11k just so I can take the moral high ground without any factual basis or argument as normal

[d000hg]

£12,000 is still worth consideration. It's in line with National Minimum Wage, which you don't need to consider if you're a director, but should be thinking about if you want to claim you're an employee and therefore entitled to employee statutory payments like SSP, SMP etc.

Is that based on the argument that since £12k is only a bit more than £10k and the cost will be minimal, you might as well? e.g. if the most tax efficient salary was £8k would you still recommend £12k?

[Clare@InTouch]

Is that based on the argument that since £12k is only a bit more than £10k and the cost will be minimal, you might as well? e.g. if the most tax efficient salary was £8k would you still recommend £12k?

We've always advised erring on the side of caution with £12,000 as a standard recommendation when people ask, but also mention that some people prefer to take the minimum and incur no tax or NI at all. It depends how cautious people want to be.

[Martin at NixonWilliams]

We've always advised erring on the side of caution with £12,000 as a standard recommendation when people ask, but also mention that some people prefer to take the minimum and incur no tax or NI at all. It depends how cautious people want to be.

From what perspective do you believe a £12,000 salary to be less cautious? Other than the fact slightly less tax would be payable if HMRC were successful in an IR35 enquiry of course.

[psychocandy]

Must admit I don't understand this "I'll pay myself a little bit extra so it looks a bit better" idea when theres no real evidence. Surely the amounts involved are small anyway?

Can't imagine HMRC saying ok he paid a few £ tax so fair play we'll leave him alone.

Each to his own I guess though...

[Clare@InTouch]

From what perspective do you believe a £12,000 salary to be less cautious? Other than the fact slightly less tax would be payable if HMRC were successful in an IR35 enquiry of course.

It's nothing to do with IR35, that's totally unrelated.

If you're paying a low salary then we'd recommend £12,000 as it's line with NMW, therefore there can be no arguments re statutory payments etc. If I were an HMRC Inspector I'd personally be looking more at people on the NI level salary as they're obviously more interested in minimising tax so might be pushing boundaries. Of course there are a hundred other factors like late payments and late filing etc, but erring on the side of caution for the sake of a few hundred quid.....

[d000hg]

Must admit I don't understand this "I'll pay myself a little bit extra so it looks a bit better" idea when theres no real evidence. Surely the amounts involved are small anyway?

Can't imagine HMRC saying ok he paid a few £ tax so fair play we'll leave him alone.

Each to his own I guess though...

If you were looking for people to investigate, searching for those who paid £0 would be an easy first test to write in your software reports

[Martin at NixonWilliams]

It's nothing to do with IR35, that's totally unrelated.

If you're paying a low salary then we'd recommend £12,000 as it's line with NMW, therefore there can be no arguments re statutory payments etc. If I were an HMRC Inspector I'd personally be looking more at people on the NI level salary as they're obviously more interested in minimising tax so might be pushing boundaries. Of course there are a hundred other factors like late payments and late filing etc, but erring on the side of caution for the sake of a few hundred quid.....

I wasn't under the impression your suggestion had anything to do with IR35 it's just the only thing I could think of that makes a £12,000 any more cautious than one in line with the NI threshold or £10k

I'm not sure what you mean about the statutory payments? A director without a contract of employment is not subject to NMW but I'm not aware that this causes a problem with statutory payments, have InTouch had any experience of this?

[Clare@InTouch]

I wasn't under the impression your suggestion had anything to do with IR35 it's just the only thing I could think of that makes a £12,000 any more cautious than one in line with the NI threshold or £10k

I'm not sure what you mean about the statutory payments? A director without a contract of employment is not subject to NMW but I'm not aware that this causes a problem with statutory payments, have InTouch had any experience of this?

We've not seen it challenged, but such payments are only available if you're an employee so that's not to say they couldn't be in my view.

Clients are free to do whatever they prefer, it's just our view