So, while investigating what salary to pay myself this year, my accountant has recommended taking around £7.6k as opposed to the £10k which takes advantage of the NI changes recently. Apparently it's because the tax saving is relatively small and if the NI benefit is removed in future, reducing my salary back to the most efficient level again may be seen as tax avoidance.
I asked for further details on the precise regulations etc. that this was based on and received the following:
"This is our professional opinion on the matter.This is from our accountancy director who has worked for HMRC for 20 years.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.
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.
We are not saying you cannot lower your salary, and doubtless many people will, but we simply do not recommend it."
Any thoughts, particularly from those with a professional interest in this area?
I asked for further details on the precise regulations etc. that this was based on and received the following:
"This is our professional opinion on the matter.This is from our accountancy director who has worked for HMRC for 20 years.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.
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.
We are not saying you cannot lower your salary, and doubtless many people will, but we simply do not recommend it."
Any thoughts, particularly from those with a professional interest in this area?
Comment