Reply to: How much salay do you pay yourself

[Little'Old Me]

Is the minimum wage £11250 applicable for 2008-2009 OR 2009-2010?

I don't think it matters. The question refers to people whose salary at least this amount or over.

[Ashwin2007]

Is the minimum wage £11250 applicable for 2008-2009 OR 2009-2010?

[pmeswani]

Sorry, that's a bloody long woffly answer for a very short simple question of what does an acronym mean.

That'll teach me to ask.

[Little'Old Me]

I hear a few accountants tell me, clients should not take a low salary....

They tend to be accountants that lack confidence in what they do....

I have a large number of Ltd company clients, and although we have discussed the options, not one, want to pay more than max, not to pay Tax & NIC. A couple even refuse to take any salary! In the last 2years, 3 clients moved to me because their previous accountant refused to do it. The only ones that pay tax (no NIC) have some additional self-employed income, or have employees.

I have a couple of Self-employed clients, who employ their wives on £20-£40k salaries - but they make so much money they are happy to pay them, the Tax & NIC. The maternity pay they get when they are on maternity leave, will normally cover all the liabilities!

One director I knew (not my client), was taking a £45k salary until the Artic Systems case and then dropped to £5k... not a peep out of HMRC.

In all the 15+ years I've been doing low salaried payrolls, I have never had a problem, and nor have any of my clients.

[ASB]

Sounds about right. However, what does LEL stand for? (Sorry, having a dipsy moment).

http://www.hmrc.gov.uk/rates/nic.htm

The LEL is the "Lower Earnings Limit". Currently this is the amount of earnings required for a years pension credit. The primary threshold is the value at which NI starts.

I don't know if the state second pension is based on earnings above the LEL or the PT. This could be important if you are trying to absolutely minimise tax/ni and maximise pension benefit. Untimately the difference between the LEL and the PT (15 pw) would cost you personally 11% and the company 12.8. However the paying of this would reduce the profit of the comapny and thus get a bit of CT relief -making the effective er ni contribuiton also in the order of 10.5%. Now as an individual if you don't have earned income for this you lose personal tax relief of 20% effectively on the 15 pw - but you may get the savings rate of 10% anyway.

I'd have to run the numbers through a tax calculator to work out the overall difference in liabilitys - at most it's a few quid either way. So the only question becomes do you get enough S2P as a result of the difference between 95 and 110 to make it worthwhile increasing salary to 110 pw. I suspect the answer is that you would need very specific circumstance for it to actually make any vialble difference. The S2P rules are far too complex for me to work out the nuances.

The important thing in my view is to ensure you have enough salary to get the years basic pension credit at nil cost - since it is a cost to buy it in voluntarily. There are some circumstance where it is worth buying though - in fact in most cases it's probably worth doing, especially if it gets you enough "old years" (since you need 10 to qualify for anything under the old system. Against the interaction of the old system and the new 30 year system is not entirely clear to me either). Thyen of course just to make sure everything is as clear as an opaque thing there is the sold called minimum income guarentee which is means tested. This can mean thatmodest savings or pension pots are in fact pointless anyway since under the current system pension will be topped up to the MIG if you don't have the money yourself (the MIG is a complete con in my vies - it effectively becomes a 100% tax rate for people of modest means in retirement).

Sorry, that's a bloody long woffly answer for a very short simple question of what does an acronym mean.

[ASB]

Sounds about right. However, what does LEL stand for? (Sorry, having a dipsy moment).

http://www.hmrc.gov.uk/rates/nic.htm

The LEL is the "Lower Earnings Limit". Currently this is the amount of earnings required for a years pension credit. The primary threshold is the value at which NI starts.

I don't know if the state second pension is based on earnings above the LEL or the PT. This could be important if you are trying to absolute minimise tax/ni and maximise pension benefit. Untimately the difference between the LEL and the PT (15 pw) would cost you personally 11% and the company 12.8. However the paying of this would reduce the profit of the comapny and thus get a bit of CT relief thus making the effective er ni contribuiton also in the order of 10.5%. Now as an individual if you don't have earned income for this you lose relief of 20% effectively on the 15 pw - but you may get the savings rate of 10% anyway.

I'd have to run the numbers through a tax calculator to work out the overall difference in liabilitys - at most it's a few quid either way. So the only question becomes do you get enough S2P as a result of the difference between 95 and 100 to make it worthwhile increasing salary to 100 pw. I suspect the answer is that you would need very specific circumstance for it to actually make any vialble difference. The S2P rules are far too complex for me to work out the nuances.

The imprtant thing in my view is to ensure you have enough salary to get the years basic pension credit at nil cost - since it is a cost to buy it in voluntarily. There are some circumstance where it is worth buying though - in fact in most cases it's probably worth doing, especially if it gets you enough "old years" (since you 10 to qualify for anything under the old system. Agains the interaction of the old system and the new 30 year system is not entirely clear to me either.

[pmeswani]

Of course, what I'd forgotten was the NI rate not changing as a result of the increase in the personal allowance. The LEL is £95 per week so you need this amount to get the pension credit. The primary threshold is £110 per week. It is only over this you pay NI.

Sounds about right. However, what does LEL stand for? (Sorry, having a dipsy moment).

[ASB]

I've been advised against it (I suggested it to my accountant). What my accountant told me is that anything above the £5k old tax limit will attract some national insurance contributions. And as I alreay qualify for the same amount of Pension contributions as those on £13k or £15k (can't remember the amount off hand), then there is little point in paying myself much more than needed. However, saying that, I have been tempted to give myself a payrise so that I can bump up my personal pension contributions, but may delay that idea until I get a longer contract.

Of course, what I'd forgotten was the NI rate not changing as a result of the increase in the personal allowance. The LEL is £95 per week so you need this amount to get the pension credit. The primary threshold is £110 per week. It is only over this you pay NI.

[richy]

Qdos don't require you pay yourself NMW for TLC35 anymore.

Ah that's interesting. I guess <NMW doesn't attract the HMRC investigations they fear after all then.

[pmeswani]

I'd be inclined to up it to the current tax code, still saving a couple of hundred quid and getting a years free state pension to boot (though you will still get that if you are over the LEL)

I've been advised against it (I suggested it to my accountant). What my accountant told me is that anything above the £5k old tax limit will attract some national insurance contributions. And as I alreay qualify for the same amount of Pension contributions as those on £13k or £15k (can't remember the amount off hand), then there is little point in paying myself much more than needed. However, saying that, I have been tempted to give myself a payrise so that I can bump up my personal pension contributions, but may delay that idea until I get a longer contract.

[ASB]

I pay myself the £5k (the old tax code) and the rest in dividends. If I am able to sustain some work over the next 12 months, I might look at increasing the salary.

I'd be inclined to up it to the current tax code, still saving a couple of hundred quid and getting a years free state pension to boot (though you will still get that if you are over the LEL)

[pmeswani]

I can't see any reason to do that unless you have salary from elsewhere that uses your allowances. Surely the minor hassle of filling in a few forms once a year is worth 1200 quid?

I pay myself the £5k (the old tax code) and the rest in dividends. If I am able to sustain some work over the next 12 months, I might look at increasing the salary.

[MickeyP]

Also I think it is only fair to be a little bit inline with the levels of tax others pay in the UK. I know ltd is completely different form being an employee, but I feel the massive tax savings we get as a ltd aren't 100% justified. so I still pay NMW even though not strictly required by HMRC (but by QDos).

Income rates should be normalised, so small ltd larger ltd, and company employee pay around similar percent tax.
richy

Qdos don't require you pay yourself NMW for TLC35 anymore.

[BolshieBastard]

About £5000.

Hahahahahah! ******* class! Villa just scored a 2nd at the toilet!

[richy]

I can't see any reason to do that unless you have salary from elsewhere that uses your allowances. Surely the minor hassle of filling in a few forms once a year is worth 1200 quid?

Also I think it is only fair to be a little bit inline with the levels of tax others pay in the UK. I know ltd is completely different form being an employee, but I feel the massive tax savings we get as a ltd aren't 100% justified. so I still pay NMW even though not strictly required by HMRC (but by QDos).

Income rates should be normalised, so small ltd larger ltd, and company employee pay around similar percent tax.
richy