NewLTDCo & Tax/NI Paid So Far In 2012

[Oscar10]

Hi there, new to the forum but have been reading many older posts over the last couple of weeks. I hope I am posting in the correct section.

I am 20 days into my first contract and I am not wanting to take the pi** regarding salary and dividends and I do want to maximise the success of my LTDCo. My P45 last month had about £5500 Income Tax and £2300 NI contributions between April and Sept. The question I have is how do I make the best of the remaining 6 months when it comes to setting a salary for myself.

Is there a chance I could get in to a long, drawn out process with the Inland Revenue due to the fact that I may be due some tax back?

I plan to call a local accountant in the next couple of days and wanted to have some idea so I do not look like a complete <mod redacted>idiot</mod redacted>. I thought I would come in here and do that instead.......

[NotAllThere]

It's perfectly acceptable to look an idiot in accountancy matters so long as you are not an accountant.

[captainham]

It's perfectly acceptable to look an idiot in accountancy matters so long as you are not an accountant.

It's definitely best to get an accountant to advise you properly, but you can pay yourself a small salary that doesn't attract tax and NI (e.g. £600 per month...optimum is £624 I think, before you need to start paying NI), then you may also find your LtdCo can pay you back any extra tax you are otherwise due (your LtdCo will reclaim this from HMRC after tax year has ended).

You would need payroll software to calculate this, plus of course the advise of somebody you can trust, which is why you should speak to an accountant because I'm a numpty and listening to me can be dangerous for your health and financial well-being

[psychocandy]

Get an accountant.
Get an accountant.
Get an accountant.
Get an accountant.
Get an accountant.
Get an accountant.
Get an accountant.
Get an accountant.
Get an accountant.

:-)

Same thing for me the other year. Chances are accountant will advise to pay no salary this year just dividends.

[psychocandy]

It's definitely best to get an accountant to advise you properly, but you can pay yourself a small salary that doesn't attract tax and NI (e.g. £600 per month...optimum is £624 I think, before you need to start paying NI), then you may also find your LtdCo can pay you back any extra tax you are otherwise due (your LtdCo will reclaim this from HMRC after tax year has ended).

You would need payroll software to calculate this, plus of course the advise of somebody you can trust, which is why you should speak to an accountant because I'm a numpty and listening to me can be dangerous for your health and financial well-being

Agreed. But if you've already got an income from permie employment during the tax year then, in all likelihood, its going to be pointless paying a salary this year because you've already used up your NI free amount.

[captainham]

Agreed. But if you've already got an income from permie employment during the tax year then, in all likelihood, its going to be pointless paying a salary this year because you've already used up your NI free amount.

If you pay yourself below the weekly NI threshold then there is no NI to pay. I think you mean income tax?

If you are owed tax back from permiedom, then paying a small salary is an easy way to get (a lot of it) back quickly. Your LtdCo can refund it to you almost immediately but of course you end up paying the equivalent of 20% tax on it (in the form of a reduced PAYE 'refund' from your LtdCo, or at least I think you do...this is precisely why I have an accountant ), then your LtdCo claims it back from HMRC at year end.

Depends on if you want to wait to get it back early or not really. It's an option, that's all (plus it ticks the QDOS box when taking out IR35 insurance about paying yourself a salary from LtdCo!).


Edit: just remembered: the bit about paying the equivalent of 20% tax on the salary is correct, but it is made tax neutral by removing 20% corporation tax on the same amount, as salary is a tax deductible expense. Therefore no reason not to do it straight away and get some wonga back in your pocket much sooner.

PPS. I'm not sure if I'm allowed to thank my accountants for this advice (they post on here), so I'll play it safe for now...

[northernladuk]

It's perfectly acceptable to look an idiot in accountancy matters so long as you are not an accountant.

Ahhh, that is how to call someone an idiot in prof forums without getting an infraction.. Have to take note of that.

[Jessica@WhiteFieldTax]

First thing is IR35 status. If caught then you hands are tied. If not caught then you have more flexibility. All the contract reviews and professional advice in the world don't make that decision for you, its your call as director.

If outside of IR35 then I would tend to suggest no salary for the remainder of this tax year and a monthly dividend leaving a slug aside for Corporation Tax and eventual Higher Rate Tax.

You will have a overpayment of tax under PAYE at the end of the tax year, but that will offset via your Self Assessment return against Higher Rate on your dividends.

Thats how I would look at it, but differing accountants have different approaches, none are right or wrong. Make sure you have confidence in whoever you talk to.

[psychocandy]

If you pay yourself below the weekly NI threshold then there is no NI to pay. I think you mean income tax?

If you are owed tax back from permiedom, then paying a small salary is an easy way to get (a lot of it) back quickly. Your LtdCo can refund it to you almost immediately but of course you end up paying the equivalent of 20% tax on it (in the form of a reduced PAYE 'refund' from your LtdCo, or at least I think you do...this is precisely why I have an accountant ), then your LtdCo claims it back from HMRC at year end.

Depends on if you want to wait to get it back early or not really. It's an option, that's all (plus it ticks the QDOS box when taking out IR35 insurance about paying yourself a salary from LtdCo!).


Edit: just remembered: the bit about paying the equivalent of 20% tax on the salary is correct, but it is made tax neutral by removing 20% corporation tax on the same amount, as salary is a tax deductible expense. Therefore no reason not to do it straight away and get some wonga back in your pocket much sooner.

PPS. I'm not sure if I'm allowed to thank my accountants for this advice (they post on here), so I'll play it safe for now...

Sorry, My mistake. You're right.

It worked out no gain to pay salary so stuck with just dividends for 1st year.

[Oscar10]

Thank you everyone for the advice. I have done as suggested and approached an accountant. I will certianly investigate the reduced PAYE 'refund' from my LtdCo.