Minimum wage question

[ASB]

In the scenario oulined below:

Salary £5435
Pension contributions £20000
Dividend payment £40000
Childcare vouchers £2860 (£55 per week)

Could the Director claim to have an 'implied' contract of Salary + Pension contributions + Childcare Vouchers which take him over the NMW, but through salary sacrifice collects the pension contribution + childcare vouchers instead of actual salary.

No, salary sacrifice cannot reduce your cash pay to below the NMW.

[KackAttack]

In any event there is a good reason to pay NMW if, for example, you are looking at childcare vouchers. These seem to insist that a contract of employment is in place for any scheme providers.

Also any benefit paid by salary sacrifice (which can have beneficial NI effects) needs a contractual salary.

In the scenario oulined below:

Salary £5435
Pension contributions £20000
Dividend payment £40000
Childcare vouchers £2860 (£55 per week)

Could the Director claim to have an 'implied' contract of Salary + Pension contributions + Childcare Vouchers which take him over the NMW, but through salary sacrifice collects the pension contribution + childcare vouchers instead of actual salary.

[Nixon Williams]

I am happy with what we do, and I just like to remind people that there is an alternative view.

I can assure you that our clients can make their own decisions but based on a range of options that we offer them.

Your comparison is not really realistic, but as you have already stated, we have gone over this ground before and I am not going to get into a game of ping pong with you.

[THEPUMA]

I would agree that there have been no known cases but that does not mean to say that there will not be.

I am quite happy with the advice we offer, all our clients can listen and act on our advice or can make their own choice. We offer that choice.

Some accountants are quite happy for the riskier approach as they can collect more fees with investigation work.

Alan

Total nonsense.

The stream at the bottom of my garden has never burst its banks but I don't think I'll bother spending thousands of pounds building flood defences.

You have to take more responsibility for the advice you give. Of course your clients can override you but they are paying you for advice and 99% of them will follow your recommendations.

We have never collected a single penny relating to investigation work in connection with NMW. My advice is based upon saving my clients as much tax as possible. Nothing else.

[Nixon Williams]

I would agree that there have been no known cases but that does not mean to say that there will not be.

I am quite happy with the advice we offer, all our clients can listen and act on our advice or can make their own choice. We offer that choice.

Some accountants are quite happy for the riskier approach as they can collect more fees with investigation work.

Alan

[THEPUMA]

I would agree that the NMW would apply if there is a contract, but I would argue that a contract does not necessarily have to be in writing. There could be an implied contract.

Generally, for contractors their duties as directors only cover a small part of their work. The majority of the time would be spent doing their contracted work, this is not dependant upon them being a director.

So I would argue that the NMW would apply, although this is clearly a decision each director must make for themselves.

The extra overall tax bill by taking NMW rather than £5435 is around £1100 per annum.

Alan

It is well documented that this is a theoretical argument but I have never known anyone who has come up against it and I would strongly fancy my chances of arguing against it.

If you're going to be that cautious, you would treat all of your clients as caught by IR35 too.

I know we've been through this many times before but now that the legislation is 10 years old and there are still no cases I'm aware of where HMRC have raised this argument, do you not think the time has come to accept that you are wrong and stop costing your clients c£1150 pa in extra tax?

[Nixon Williams]

A very good point Alan - I would suspect that the majority of director do have an implied contract for their work. However it needs an employee to complain (unless the proposals to give HMRC power in this areas have now been enacted) - one is hardly likely to dob oneself in!

Whilst a complaint from an employee is the common way to be caught, HMRC can act without a complaint from a member of staff.

Alan

[ASB]

I would agree that the NMW would apply if there is a contract, but I would argue that a contract does not necessarily have to be in writing. There could be an implied contract.

Generally, for contractors their duties as directors only cover a small part of their work. The majority of the time would be spent doing their contracted work, this is not dependant upon them being a director.

So I would argue that the NMW would apply, although this is clearly a decision each director must make for themselves.

The extra overall tax bill by taking NMW rather than £5435 is around £1100 per annum.

Alan

A very good point Alan - I would suspect that the majority of director do have an implied contract for their work. However it needs an employee to complain (unless the proposals to give HMRC power in this areas have now been enacted) - one is hardly likely to dob oneself in!

In any event there is a good reason to pay NMW if, for example, you are looking at childcare vouchers. These seem to insist that a contract of employment is in place for any scheme providers.

Also any benefit paid by salary sacrifice (which can have beneficial NI effects) needs a contractual salary.

[Nixon Williams]

Agreed.

However the real point is that NMW does not have to come via PAYE (afaik).

So in taking dividends unless you are living in a box and take 50p a week even if you paid yourself 100% dividends and no paye in any tax year your still getting paid NMW.

Dividends do not count towards the NMW.

NMW does have to be paid as salary or other payments subject to PAYE.

You would not have a contract of employment that included dividend payments, this is an entitlement as a shareholder not as an employee.

Alan

[Sockpuppet]

Agreed.

However the real point is that NMW does not have to come via PAYE (afaik).

So in taking dividends unless you are living in a box and take 50p a week even if you paid yourself 100% dividends and no paye in any tax year your still getting paid NMW.

[Nixon Williams]

I would agree that the NMW would apply if there is a contract, but I would argue that a contract does not necessarily have to be in writing. There could be an implied contract.

Generally, for contractors their duties as directors only cover a small part of their work. The majority of the time would be spent doing their contracted work, this is not dependant upon them being a director.

So I would argue that the NMW would apply, although this is clearly a decision each director must make for themselves.

The extra overall tax bill by taking NMW rather than £5435 is around £1100 per annum.

Alan

[thunderlizard]

What you have done is left employer A and gone to work for employer B.

It is the employer's responsibility to pay minimum wage. It is not the employee's responsibility to make sure he gets paid minimum wage on aggregate from several employers over a period of time.

Employer B can't say to his employee "I don't have to pay you minimum wage, because you got more than enough from Employer A when you were working for them"

[VectraMan]

I've been working through an umbrella for the last year or so, and have just set up a limited.

I've already been paid over a year's minimum wage for this tax year when I was with the brolly. Does this mean I can pay myself entirely in dividends for the year or have completely misunderstood things?

If you assume that NMW does apply to directors, then you still need to pay at least minimum wage for the rest of the year. The minimum wage is per hour, not per year.

If you assume it doesn't (and most would agree it doesn't), then you've paid enough PAYE for the year for whatever purpose you'd want to be PAYE, and can pay dividends only.

But IANAA.

[ASB]

I've been working through an umbrella for the last year or so, and have just set up a limited.

I've already been paid over a year's minimum wage for this tax year when I was with the brolly. Does this mean I can pay myself entirely in dividends for the year or have completely misunderstood things?

Are you a director? If so NMW doesn't apply - unless you have a contract of employment.

[DiscoStu]

I've been working through an umbrella for the last year or so, and have just set up a limited.

I've already been paid over a year's minimum wage for this tax year when I was with the brolly. Does this mean I can pay myself entirely in dividends for the year or have completely misunderstood things?