Reply to: paying a salary while not trading

[Zen Contracting]

Where do you get £42,035 from? I think you'll find it's £40,835.

Sorry, typo on my part. Yes, it is £40,835.

[THEPUMA]

Going back to the OP's question there is no reason why you cannot continue to pay yourself a salary from your limited company even though the company is not billing. The most tax efficient method of doing this (in 08/09) is to take an annual salary of £5,435 (about £452 per month) and the rest as dividends. So long as the total of the salary and the grossed up dividend do not exceed £42,035 then there will be no more tax for the OP to pay.

Regards.

David.

Where do you get £42,035 from? I think you'll find it's £40,835.

[Zen Contracting]

Going back to the OP's question there is no reason why you cannot continue to pay yourself a salary from your limited company even though the company is not billing. The most tax efficient method of doing this (in 08/09) is to take an annual salary of £5,435 (about £452 per month) and the rest as dividends. So long as the total of the salary and the grossed up dividend do not exceed £40,835 then there will be no more tax for the OP to pay.

Regards.

David.

[ASB]

ASB , thanks for the opinion but no where I suggested getting 5 K in salary only.

Most contractors pay at least 10 K in PAYE over an accounting year. The case is simply that I have paid 10K already. Does it make sense to keep paying salary in this case ? HMRC's PAYE botton line has been crossed already.

I didn't realise you had actally paid it all - I thought it's what you were proposing to pay. Still, theres always next year to reduce it to the minimum.

n.b. there has been huge debate about salary levels, I take the view that 5k is most effective. Make your own mind up though...

[chicane]

If what you're doing is completely legal, does it matter what view HMRC takes?

Because it's often the case that there's no such thing as legal/not legal where Hector is concerned. There are only grey areas potentially leading to drawn-out investigations where the criteria for investigation is unknown and the rules for compliance are defined on an ad-hoc basis.

[VectraMan]

I was planning on doing something similar until my accountant advised against it. He reckons that HMRC might take a dim view of a small company accumulating hundreds of thousands of pounds in their bank account and drip-feeding it down to the shareholders/employees over a long period of time.

If what you're doing is completely legal, does it matter what view HMRC takes?

[VectraMan]

Most contractors pay at least 10 K in PAYE over an accounting year. The case is simply that I have paid 10K already. Does it make sense to keep paying salary in this case ? HMRC's PAYE botton line has been reached already.

Depends why you are doing it. If you're trying to pay as little tax, then no. If you're concerned about minimum wage, then you should keep paying it if you're still working (minimum wage is per hour, not for the year as a whole). If you think paying a larger salary is less likely to trigger an IR35 investigation, then toss a coin. Nobody really knows.

[Likely]

Yes, of course. What I was meaning was that if the OP did any billable work they would still need to be considering the IR35 position on that which might scupper only paying 5k as salary.

ASB , thanks for the opinion but no where I suggested getting 5 K in salary only.

Most contractors pay at least 10 K in PAYE over an accounting year. The case is simply that I have paid 10K already. Does it make sense to keep paying salary in this case ? HMRC's PAYE botton line has been crossed already.

[hgllgh]

Collect £350k in your business account then just take the rest of your life off and pay yourself £15k a year out the business. That's one of my (semi)retirement options/theories... (obviously put the money into a well paying interest account too).

even better .... get esc16 CGT to extract the 350K minus 10% tax and then get about 15K a year interest in a high interest account/ISAs etc.

That way the total sum of money is not going down by paying 15K a year....

[ASB]

Not an issue if there is no contract being worked on.

Yes, of course. What I was meaning was that if the OP did any billable work they would still need to be considering the IR35 position on that which might scupper only paying 5k as salary.

[Alan @ BroomeAffinity]

IR35 relates to the working practices between YourCo and ClientCo. If there is no ClientCo then there is no IR35 issue.

[pmeswani]

Not an issue if there is no contract being worked on.

If one is not actively working for 2 years and is claiming a salary / dividends, won't they get caught out by IR35? Sorry, am displaying my ignorance here.

[Alan @ BroomeAffinity]

Obviously you need to consider your IR35 position.

Not an issue if there is no contract being worked on.

[ASB]

Related question:

If the ammount of PAYE salary that you have already paid yourself during this accounting year is over 10 K which is roughly 1 year salary on the minimum national rate , does it make sense to keep paying PAYE ? Or the HMRC should be satisfied ( i know ) that you paid enough PAYE and all further earnings should be taken as dividends ?

From a simple tax/ni point of view it makes no sense to pay yourself above 5035 (updated recently though). At this level you still get your full years credit for pension and don't actually pay any NI at all. This won't give you any SSP (serps) credits though.

This does not meet minimum wage requirements - but if you are a director without a service contract then this doesn't matter (DTI view).

Obviously you need to consider your IR35 position.

[Alan @ BroomeAffinity]

If you're not trading, just shut the company down and extract your capital and take entrepreneurs relief.