Reply to: Max Dividend If No Salary Taken 2015/16

[WordIsBond]

An accountant who knows the full details is better equipped to advise you on the MVL thing than someone on the Internet who doesn't. So if you took advice, it is probably ok, but you are responsible, obviously.

If you ended trading in October 14, you presumably had profit for 2014-2015 on which corporation tax is due. Given that, viewing the old company in isolation you almost certainly should take a salary this year and carry back the loss to cut the CT bill -- unless, of course, you are going to take a salary from your new company instead. But if the goal is to get max out of the OldCo, salary is more efficient. It also has the benefit of not being grossed up, which lets you get a little more out.

You really need to sit down and discuss it in detail with an accountant. Ask him about paying salary to create a loss and carrying it back to recover corporation tax.

I didn't entirely get the 35% shareholding. Did you mean you've transferred most of the shareholding to a spouse?

[FMCG]

Similar but not same skillset in a different sector. None of the existing clients.

Spoke to 3 different accountants before embarking on this route who agreed "would be allowable".

HMRC may view differently at some stage?

Always been open and honest with HMRC eg even with FRS declared registration number of "old" company.

[northernladuk]

Hmm how can you use MVL limits when you have another company open and are still doing the same thing. Sounds like aggressive tax avoidance using a phoenixing model to me.

You should be transferring the money in the old company to the new one, not getting it out under the veil of no longer trading shouldn't you??

[FMCG]

Thanks. People like me appreciate the help and experience/guidance/input/thoughts (plus what sounds once in a while like a bo11ocking) from the more experienced ones on here.

As a Director of my own company think that I am responsible if HMRC ever choose to investigate, with some help from my accountant.

WRT this topic. Ended up with 2 companies as decided to move accountant as 1st set not really delivering "anticipated service" plus always last minute even when my paperwork submitted to them a week after my VAT Q ended. Given my discomfort, started a 2nd company simultaneously moving to new accountant ie a clean slate. HOWEVER as with all these things there is baggage.......

The baggage is just over £100K of money in the old company (CT/VAT/NI/etc all upto date) even though has not "traded" since October 14 (Y/E Jul 15). Simply trying to "recover" as much as "allowable" ........essentially trying to get below £25K MVL limit PLUS before 16/17 dividend rule changes come into play. My logic was - take no salary but max dividend (already transferred shares in readiness so that my shareholding is 35%).

Generally have a good route around using the search facility and online calculators (ironically some posters paste the same link that I have visited.....so must be doing something right ) before asking here - as everyday here is a "schoolday" and much appreciated.

[ASB]

Perhaps its NI Im thinking about then....

It is entirely possible that if a request is made for a tax code for an employee/director then it will come through with a W1/M1 basis in which case PAYE is calculated individually each month rather than cumulatively and this will be corrected with either the SATR or when a non W/M1 code is finally produced.

But certainly more likely with NI - though it doesn't take the SATR to resolve it.

It is permitted to use apply NI to directors on a non cumulated basis (and certainly easier than either of the alternate calculation methods for directors). In this case the month 12 payment should be calculated differently to take account of an annual earnings period which balances everything out.

https://www.gov.uk/government/upload...__2015.pdf.pdf

[psychocandy]

Not definitely. On the assumption it is not a W1/M1 tax code held by the OP then assuming a 10k salary they are a number of choices:-

1. Pay it at 1250/pm for the next 8 months. This should attract any PAYE because the freepay to date is 3.3k.
2. Pay 4166 now then 833 for each remaining month. Same as above, should be covered by free pay.

NI of course is a bit more complex, on the assumption that the proportionate directors method is used to calculate that should still come out equal over the year. Of course reducing salary to ensure no NI ispaid is a possibility, but ensuring it is a good enoughlevel (which can still attract no NI) to get a years pension credit would be sensible.

This does all assume that there isn't some weird reason why the OP would be better off without paying a salary.

Perhaps its NI Im thinking about then....

[ASB]

(Only issue though is it WILL attract PAYE because of this but it all gets sorted at tax return time - you just have to wait).

Not definitely. On the assumption it is not a W1/M1 tax code held by the OP then assuming a 10k salary they are a number of choices:-

1. Pay it at 1250/pm for the next 8 months. This should attract any PAYE because the freepay to date is 3.3k.
2. Pay 4166 now then 833 for each remaining month. Same as above, should be covered by free pay.

NI of course is a bit more complex, on the assumption that the proportionate directors method is used to calculate that should still come out equal over the year. Of course reducing salary to ensure no NI ispaid is a possibility, but ensuring it is a good enoughlevel (which can still attract no NI) to get a years pension credit would be sensible.

This does all assume that there isn't some weird reason why the OP would be better off without paying a salary.

[psychocandy]

OP - NLUK is right and you should ask your accountant.

Also, you do know that even though you may not have paid salary yet this tax year, it doesnt matter - you can "catch up". i.e. if accountant says yes £10K is what you want this year, then no problem with just spreading those through the remaining months. It doesnt "have" to be 12 payments.

(Only issue though is it WILL attract PAYE because of this but it all gets sorted at tax return time - you just have to wait).

[WordIsBond]

Any thoughts on this?

Two thoughts:
1. You are probably right, that you shouldn't take any salary.
2. NLUK is definitely right, you should ask your accountant.

[northernladuk]

Yep. I was thinking it would be good to know what your accountant said.

[Crossroads]

Related to this, I've just crunched some numbers relevant to my situation, where I have other (property rental) income that uses up all my personal allowance but less than the 40% threshold.

If I've got it right, then in this scenario it is better to not take a salary.

This does incur a higher CT bill and the overall tax amount paid (i.e. CT plus my personal tax bill) is the same, however it is preferable this was around as I have a smaller personal tax bill, the end result being I have more of my £42385 in my pocket (£806 more).

Any thoughts on this?

[WordIsBond]

I don't know the reasons OP has for not taking salary. The simple answer to the question asked is £38147.

Salary of £8060 can be taken without any NI or income tax. This is much preferable from a tax perspective. Salary is not "grossed up" like dividend is, so the £8060 only takes £8060 out of your personal allowance. As a result, if you take £8060 in salary, you can take £30893 in net dividend, for a total take of £30953 (edit: oops, £38953). If you file for employment allowance (not permitted for one man bands from April 2016, but still available this year), it may be better for you to take £10600 in salary.

Salary also has the benefit of being a company expense, thus reducing your corporation tax. If you are still contracting, this allows you to take £8060 (or £10600) off of your profit, reducing CT by 20% of that amount. Even if you are not contracting, you can take it as a corporate loss and carry it back to last year, reducing last year's CT, if you had profit last year. If you had no profit last year, you can still take it as a loss and carry the loss forward, if you expect to contract again in future. (I think you are only allowed to carry it back one year.)

That means in almost every case, there is a significant tax advantage in paying yourself at least £8060 in salary (the difference between paying £8060 or £10600 with employment allowance is small). The only case, AFAIK, in which the difference isn't significant is if you aren't contracting any longer, don't expect to in future, and had no profit in the prior year, either. In that case, there are no corporation tax ramifications, and the only difference comes in that you can take a little more out without hitting the higher rate threshold, because salary isn't grossed up like dividends.

If that all seems complicated, you also need to figure in how much income you have from interest on savings or anything else. That can change the whole picture. And there's also the chance I might have got some of this wrong -- I certainly don't know all the rules on carryback/carry forward of losses. So hopefully, I've given enough information to convince you this is not entirely straightforward and you really should take accountant's advice.

[ASB]

Yes, I am, but the OP may not be.

We also shouldn't assume the OP fully understands the break at the higher rate.

Quite true. Though he clearly understands some aspects, ie that therr is a limit before they get the privilege of paying some higher rate tax.

I am not sure they realise the impact of not using their nil rate band hence my pointer that some salary may well be more efficient overall.

Equally we dont know their full circumstances. Hence my comments about salary. There may potentially be an overall 2k saving on tax possible.

[malvolio]

Tuliped the bed as usual mal?

I did not imply in any way that dividends are not subject to income tax.

What I did state - which an intelligent gent like yourself is of course aware of - is that not having income to allocate against ones personal allowance (ie nil rate band) is inefficient. Dividend income does not, as you are doubtless aware, fulfil this criteria.

Yes, I am, but the OP may not be.

We also shouldn't assume the OP fully understands the break at the higher rate.

[ASB]

So dividend income isn't liable for Income Tax then...?

Tuliped the bed as usual mal?

I did not imply in any way that dividends are not subject to income tax.

What I did state - which an intelligent gent like yourself is of course aware of - is that not having income to allocate against ones personal allowance (ie nil rate band) is inefficient. Dividend income does not, as you are doubtless aware, fulfil this criteria.