What do you pay yourself.

**ladymuck** · 27 October 2005, 12:05

I do £500 p/m salary and then quarterly dividends. Pay expenses monthly which generally tides me over till the divvies are issued

**malvolio** · 27 October 2005, 12:42

It's a difficult question to answer, in the light of recent court cases. Perceived wisdom seems to be that paying a living-wage salary (or close to it) will both reduce the chances of an IR35 investigiation and minimise the damage if you get caught. However, low salary and dividends is perfectly legal.

You really have to make a risk assessment about whether or not the extra tax free income is worth it. At the lower end of the rate range, probably it is, but as you get further up it becomes more interesting!

**Denny** · 27 October 2005, 15:02

The whole point of paying yourself a salary and keeping the rest as tax free dividends is to keep the money in the company to build it up and employ other people eventually who will also be tax payers. Therefore, if you pay yourself the dividends whether quarterly or six monthly or not you attract corporation tax of 19% - so they're not tax free but obviously taxed lower than PAYE. Surely it should be obvious to you then that paying out a ridiculously low salary, staying as a one man band (plus co sec) that doesn't match market rates for the job and not taking any real business risks to grow your business to employ others is just a tax avoidance measure. That's how the Revenue will view it if you get caught out. Don't forget too that more investigations are being carried out on SME's than before. In the past year they've gone up from 9 to 12 per cent of all SMEs in London and the South East. Not a huge amount, but a significant increase all the same. I suspect that contractors are first on their radar screen if they suspect widespread abuse of the system is proliferating.

**Hiram King Of Tyre** · 27 October 2005, 16:13

Do you guys only pay yourself divvies or the co sec too?

**DimPrawn** · 27 October 2005, 17:56

Originally posted by Denny

The whole point of paying yourself a salary and keeping the rest as tax free dividends is to keep the money in the company to build it up and employ other people eventually who will also be tax payers. Therefore, if you pay yourself the dividends whether quarterly or six monthly or not you attract corporation tax of 19% - so they're not tax free but obviously taxed lower than PAYE. Surely it should be obvious to you then that paying out a ridiculously low salary, staying as a one man band (plus co sec) that doesn't match market rates for the job and not taking any real business risks to grow your business to employ others is just a tax avoidance measure. That's how the Revenue will view it if you get caught out. Don't forget too that more investigations are being carried out on SME's than before. In the past year they've gone up from 9 to 12 per cent of all SMEs in London and the South East. Not a huge amount, but a significant increase all the same. I suspect that contractors are first on their radar screen if they suspect widespread abuse of the system is proliferating.

Denny you are a disguised tax inspector/New Lie drone and I claim my £5.

**boredsenseless** · 28 October 2005, 09:40

Originally posted by Hiram King Of Tyre

Do you guys only pay yourself divvies or the co sec too?

It's not the director/secretary positions that determine dividends. When you set up the company you had to issue a number of shares.

Unless you've subsequently created different classes of share you pay dividends based on an amount per share.

Therefore if you have 1000 shares and 10K to distibute it is £10 per share.

If you and the missus (sorry secretary) have 500 each you have to split it 5K each you can't do it any other way

**XLMonkey** · 28 October 2005, 12:08

Arctic case will decide....

Originally posted by Hiram King Of Tyre

Do you guys only pay yourself divvies or the co sec too?

can do it if you want to, but be aware of the current case being fought by Arctic Ltd through the high court - the IR are trying to take the view that if the other shareholder (presume that's what you mean, since a co sec has no specific right to a divident), is your partner/relation and isn't actually earning revenue, then the "dividend" is simply tax evasion.

There's a ton of crap on the PCG website (www.pcg.org.uk) about it that will bore the knackers off you, if you really want to know. The High Court are due to rule in late November, so if you can bear to wait till then it's probably better.

However, you can legitimately pay the company secretary wages for carrying out his/her duties, regardless of any divident payments. The only question is whether or not they are earning a separate income, and whether or not you are actually going to benefit.

Also bear in mind that legitimate company expenses (e.g. buying portable computers/office equipment for their use in discharging their duties) is also reclaimable.

**DimPrawn** · 28 October 2005, 12:17

I get paid very little. The managing director instead believes shareholder value is more important than paying the workers.

**Daywalker** · 28 October 2005, 12:43

Follow the example set by Philip Green!

What do you pay yourself.