Is reducing Director salary tax avoidance?

[Martin at NixonWilliams]

His thinking behind this is that the main reason, if not the only reason, to reduce the director salary would be to avoid tax, therefor this could be lead HMRC to believe it is tax avoidance.

Since when did tax avoidance become illegal?

You only have an issue with overly aggresive tax avoidance, such as offshore arrangements where payments of salary are disguised as loans. Increasing and decreasing your salary from £7,956 to £10,000 and vice versa is hardly aggresive.

A director is not subject to the NMW rules providing there is no written contract of employment so I do not see an issue with this at all.

It would not be a transaction with a director that is held at arms length. If you were a normal employee and not a director it would not be believable that you are expected to do the same work, but for a reduced remuneration.

True, decreasing the salary wouldn't be an 'arms length' transaction, but neither would the decision to pay £7,956 or £10,000 in the first instance if you are earning towards £100,000, as is the case with a lot of contractors.

[borderreiver]

Since when did tax avoidance become illegal?

+1

Far too much bedwetting going on here, I think.

[cojak]

+1

Far too much bedwetting going on here, I think.

Whatever lets you sleep at night.

[Maslins]

+1

Far too much bedwetting going on here, I think.

Claiming expenses is tax avoidance...you could just pay it personally and not claim, but the reason you claim is predominantly to reduce your tax bill.

I do think that the government are largely to blame here though. When I studied, it was crystal clear, tax evasion = illegal and bad, tax avoidance = legal and good. The waters seem to be muddied these days, with phrases like "aggressive avoidance".

Seems like more and more things HMRC related are becoming grey areas, with fewer black and white rules. IR35 being a perfect example.

[SpontaneousOrder]

If it were to be seen as tax avoidance (in a bad way) then it's not much of a stretch to consider only working 6 months of the year and spending the other 6 on a beach as tax avoidance (in a bad way).

[ContrataxLtd]

Claiming expenses is tax avoidance...you could just pay it personally and not claim, but the reason you claim is predominantly to reduce your tax bill.

I do think that the government are largely to blame here though. When I studied, it was crystal clear, tax evasion = illegal and bad, tax avoidance = legal and good. The waters seem to be muddied these days, with phrases like "aggressive avoidance".

Seems like more and more things HMRC related are becoming grey areas, with fewer black and white rules. IR35 being a perfect example.

Couldn't agree more!

Martin

[Contreras]

If it were to be seen as tax avoidance (in a bad way) then it's not much of a stretch to consider only working 6 months of the year and spending the other 6 on a beach as tax avoidance (in a bad way).

It takes you 6 months to bill £7.6k ?

As soon as you assume that the salary should be in proportion to a director's fee earning then any salary/dividend split becomes tax avoidance and a few £k up or down won't change that.

[borderreiver]

Claiming expenses is tax avoidance...you could just pay it personally and not claim, but the reason you claim is predominantly to reduce your tax bill.

I do think that the government are largely to blame here though. When I studied, it was crystal clear, tax evasion = illegal and bad, tax avoidance = legal and good. The waters seem to be muddied these days, with phrases like "aggressive avoidance".

Well, quite. Strictly speaking, even holding an ISA is tax avoidance

IMHO it's disingenuous of HMRC or HMG to wail about avoidance or even "aggressive" avoidance. If something's not OK, change the law to disallow it. End of story.

[Zero Liability]

Yes, but bear in mind the money funnelled into ISAs is already taxed at other sources. Putting money into a pension, on the other hand, reduces your liabilities. In the end they are just whining that people are intelligent enough to protect their income through the govt's own idiotic, arbitrarily designed earning categorisations.