Skint - pay rise or extra divis?

[Denny]

How about getting your company to give you a loan to tide you over until April. Then a big divi after that, and pay back the loan.

The loan can be interest free but must be less than £5000 and needs to be paid back in full within 9 months, according to my accountant, unless you are closing the business. In which case, the loan must be paid back before the business is wound up. Important, if you are thinking of taking advantage of the April 2008 ruling.

[Denny]

Here goes -

I'm completely strapped as I'm trying to stay under the 40% and keep the money in the company. However, it's come to the point where I'm going to have to get some extra out to cover me until April. My accountant says go for the divis as the rise will cost me more. However, my current wage doesn't really cover my monthly living costs. I pay myself around the 9600 quid a year net mark at the moment.

So: do I go with the extra divis, a rise, or a combo of both?

Well, if your current wage doesn't cover your living costs before, then it needn't now. However, do bear in mind that some accountants, maybe not your own, try and discourage unrealistic salary levels that don't reflect the market rate for your skills because the general principle of being in business is that dividend payouts are a nice 'extra' - a reward for running your business profitably. They aren't intended as a salary supplement because of the tax avoidance implications that goes with that by dodging NI contributions on income that the HMRC view as salary. These more cautious accountants warn that you do run a greater risk of being investigated by HMRC, particularly if your divis are being paid out regularly, usually monthly, making them to look like salary supplements. Others will dispute this, however.

But what constitutes a 'market' salary is anyone's guess and is the topic of hot debate with the current income shifting proposals being drafted at present. That's why other accountants poo poo this cautious approach and cut to the chase and advise what is strictly legal not what HMRC expect and what other accountants recommend as advisable. After all cases have to be won first before HMRC can get their grubby mits on your hard earned cash.

All told, there doesn't seem to be a generalist unanimous view of what is safe and what isn't - so it's anyone's guess what you should do. So I would take your own accountants advice - after all, that's what you are paying them for.

[Gonzo]

Strictly speaking, the Directors Loan Account is for Directors to lend money to the company.

However I understand that it is quite common to overdraw it (i.e. for the director to borrow from the company).

But there are limits - you need to check these out because I am not an expert, but never borrow more than £5K from the company and always make sure that nothing is outstanding at the company year end.

[dude69]

I got told by my accountant circa 2000 that such practices are illegal (which I find hard to believe).

I believe you should pay back loans over £5k in the financial year. Anything under £5k is ok.

Don't quote me on the exact numbers or time frames.

You can also have a separate season ticket loan of up to £5k, not sure abot paying that one back. This is a tax-free employee perk, nothing to do with being a director.

[Diver]

I keep having to lend the company money and then claw it back.

coz I keep forgetting my company card pin (4 times so far )or forgetting to take the company cheque book

[r0bly0ns]

I have used the directors loan facility to both borrow money from and lend money to the company.

All with the accountants advice.

[EqualOpportunities]

I got told by my accountant circa 2000 that such practices are illegal (which I find hard to believe).

How about getting your company to give you a loan to tide you over until April. Then a big divi after that, and pay back the loan.

I periodically take a Director's loan, and my accountant has never bitched...

[BrowneIssue]

How about getting your company to give you a loan to tide you over until April. Then a big divi after that, and pay back the loan.

I got told by my accountant circa 2000 that such practices are illegal (which I find hard to believe).

[KentPhilip]

How about getting your company to give you a loan to tide you over until April. Then a big divi after that, and pay back the loan.

[dude69]

Listen to your accountant.

What he said.

If you pay more salary, then you will pay NI on it. And your dividends will be moved into 40% bracket.

NI is the killer.

No NI on dividends

[Ardesco]

Listen to your accountant.

There is no point in earning more than your tax allowance each year if you want to pay the absolute minimum in tax. Remember if you take money out as wages you pay employers and employee's tax and NI, if you take money out as dividends it is less.

[Zorba]

Here goes -

I'm completely strapped as I'm trying to stay under the 40% and keep the money in the company. However, it's come to the point where I'm going to have to get some extra out to cover me until April. My accountant says go for the divis as the rise will cost me more. However, my current wage doesn't really cover my monthly living costs. I pay myself around the 9600 quid a year net mark at the moment.

So: do I go with the extra divis, a rise, or a combo of both?