Reply to: Salary ups and downs

[mkant]

Thank-you. Will go away and read and try to understand. Hate accounting .

[expat]

Ok. Could someone give me the idiots guide to the difference between dividend and bonus. Don't they amount to the same, from HMRC's pow?

Michelle

A dividend is paid to shareholders, a bonus is paid to an employee.

So a bonus is part of the employee's salary: for the company, it represents a cost and is not liable to CT, but the payment is liable to Employer's NICs; for the employee it is part of salary and is liable to NICs and PAYE income tax.

A dividend is paid from profits and so for the company is liable to CT; for the employee it is dividend and not salary, so is liable to dividend income tax, but not liable to NICs.

[Gonzo]

Ok. Could someone give me the idiots guide to the difference between dividend and bonus.

Not really. It is basic stuff.

You could have a look at sections 12 and 13 of this guide, it covers pretty much everything except makes the assumption that the goal is always to legally minimise the tax that needs to be paid.

http://www.pcg.org.uk/cms/index.php?...=27&Itemid=217

But as we all know, some people like paying tax, and this guide is not for them.

[mkant]

Ok. Could someone give me the idiots guide to the difference between dividend and bonus. Don't they amount to the same, from HMRC's pow?

Michelle

[rl4engc]

... or making any large capital/plant investments for the business, eg Company Car (super green and petrol ofc) or IT equipment?

But then you end up with a load of computers sat unused, not cool hard cash.

[FarmerPalmer]

Pay yourself a 'bonus' of 20K

Why don't you just shut the company down though - take a 10% hit on whats left in there ??

WHS - keep your salary the same but pay yourself a one of bonus each year should do it. - no different than any otehr company then

[Billy Pilgrim]

Pay yourself a 'bonus' of 20K

Why don't you just shut the company down though - take a 10% hit on whats left in there ??

[mkant]

Really?

I assume that you are contracting through a Limited Co (I can't see that you would be asking this if you weren't) in which case the easiest way would be to dividend this profit out (assuming that you own the shares that is).

Clearly there are a number of factors to consider here, have you asked your accountant may I venture to suggest?

Hmm, have asked accountant - not very helpful - he glibly says no problem.
He has been wrong before .

The dividend route is not viable due to my particular situation, as I'm in the middle of a 5/6 yr period of UK non-residency. Salary is currently set at £20k p/a and would like to up that to £40k for next 3 years.

HTH
Michelle

[max]

I need to bring down the balance in the company account and it's going to be tax beneficial to do this over the next few years. So the easiest way would be a sudden 40% increase in salary for 2-3 yrs, and then a sudden decrease once it's done.

But is there any problem with adjusting the director's salary like this? My salary's always been roughly at the same level, and I don't want the hassle of being picked up by HMRC for a PAYE/IR35 check-up. Me thinks I should be able to do what the heck I want with my own salary , but maybe any increases should be gradual.

roughly, how much are we talking about?

[Solidec]

Doing that through PAYE is expensive though, with employers NI to pay.

Of course, but my point was how does reducing the balance in the company account prove to be tax efficient?

Are we talking tax effecient for the Business or tax efficient for the Individual?

[Platypus]

Surely any Ltd Co director should be drawing at the very leaset up to the 40% threshold (company profits allowing) each year anyway

Doing that through PAYE is expensive though, with employers NI to pay.

[Solidec]

I need to bring down the balance in the company account and it's going to be tax beneficial to do this over the next few years.

Surely any Ltd Co director should be drawing at the very leaset up to the 40% threshold (company profits allowing) each year anyway, so beyond this the next best option is ploughing the surplpuss into a pension, or making any large capital/plant investments for the business, eg Company Car (super green and petrol ofc) or IT equipment?

[pmeswani]

Put some into your pension?

I wonder if there is any tax efficiency in making a charity donation?

But I agree with puting the money into a pension as being a good idea.

[BrowneIssue]

I need to bring down the balance in the company account

Put some into your pension?

[Gonzo]

I need to bring down the balance in the company account and it's going to be tax beneficial to do this over the next few years. So the easiest way would be a sudden 40% increase in salary for 2-3 yrs, and then a sudden decrease once it's done.

But is there any problem with adjusting the director's salary like this? My salary's always been roughly at the same level, and I don't want the hassle of being picked up by HMRC for a PAYE/IR35 check-up. Me thinks I should be able to do what the heck I want with my own salary , but maybe any increases should be gradual.

Really?

I assume that you are contracting through a Limited Co (I can't see that you would be asking this if you weren't) in which case the easiest way would be to dividend this profit out (assuming that you own the shares that is).

If you pay it all to yourself as salary then you are doing exactly what the government thinks you should and the IR35 check up is not going to find much extra tax to be paid.

Clearly there are a number of factors to consider here, have you asked your accountant may I venture to suggest?