Reply to: Ltd salary & expenses when out of contract

[PhilAtBFCA]

Kess

I think thats a difficult one without looking at the company accounts, your personal tax position, family finances etc...

But if it were feasible within the contect of everything else then the annual salary between £5720 and £6475 would probably have been a very tax efficient option, see here for how to come to that decision.

Hope that gives you some form of answer !

Phil

[Kess]

Phil,

Thanks for the comments. Would I be right in saying that had I been idle for several months then it might be best to take some minimal salary in order to ensure I earn enough to meet the annual threshold for the Class 1 NI contribution (about £5,000 I believe)?

[PhilAtBFCA]

Salary on the bench

Hi Kess

I think your "story" has been an interesting example here. I think what it shows is that it is your annual salary that is important, in the contest on your whole years income, and the income of your company.

For instance if you stopped salary for one month, or two, or three, you may decide to pay yourself more in the months following, or indeed less. But the importance will be on your total annual salary taken from your company which you can decide based on your personal tax planning.

It has also showed that when you are "on the bench" the company continues to trade and then you make a decision based on what happens in the future i.e. another contract so continue trading, or permie perhaps so consider closure, or continue on the bench and keep company until the money runs out and then look at options again.

So thanks for your posts ! ( And congratulations on the new contract :-) )

Phil

[Kess]

That's bollox for sure.

I'm not so sure. I did wonder if the chap who happened to answer my call to NW got his facts wrong, so I went ahead and sent my monthly paperwork (bank statement and expenses claim) to them together with a note explaining there were no invoices this month, and waited to see what would happen. Today I had a phone call from a different person at NW asking whether I wanted to run the payroll for this month since I hadn't worked, and they also recommended NOT taking any salary to achieve maximum tax efficiency.

So I took their advice.

Anyway, the situation is academic now as I've got another contract so the invoices will start up again next month and all I'll have done is to skip one month's salary.

[PhilAtBFCA]

Salary whilst on the bench

Kess

I think its difficult to give any other answer than the one you have been given without many more details of your personal income, company reserves and expectation of time on the bench.

Both not taking a salary, and taking a salary could be equally valid.

I think that if you took a salary it would be the minimum you could effectively take without paying any tax £6475, or alternatively the NI threshold salary of £5720 ( these are annual salary's ).

There does seem little point in paying Minimum Wage salary which will cost you personally at least £1000 a year in comparison to the other salaries. For a Company without sales for a period of time, that may be important.

A perfectly valid alternative would be to have no salary whilst there is no sales, saving the company money, you could then pay yourself a dividend from reserves.

Accurate management accounts would be useful for you at this point so you can plan out your finances carefully during time on the bench.

Hope that helps

Phil

[Grinder]

By coincidence I phoned my accountant (NW) today to ask their advice on what to do while on the bench. The chap I spoke to recommended taking NO salary while not actively working - just use dividends.

That's bollox for sure.

[ctdctd]

I pay myself minimum wage when in contract but after a month on the bench will drop down to a three day week which is just above the threshold to keep the National Insurance going for the theoretical state pension. Stops me paying much personal income tax or NI on already taxed retained profits if I stay benched for long.

If I had the full 30 years contributions for a full state pension (Not long) I would stop salary and take as dividend instead.

[cojak]

By coincidence I phoned my accountant (NW) today to ask their advice on what to do while on the bench. The chap I spoke to recommended taking NO salary while not actively working - just use dividends.

I was a bit surprised as I thought I was effectively still working (i.e. employed by my own company) so ought to continue taking a salary to keep the tax-man happy.

Hmm - I'm not sure about that. I'm with Mustang in that I'm still employed by MyCo, just in a different role (Sales, Development, etc...)

Can Phil or Simon comment on this?

[Kess]

By coincidence I phoned my accountant (NW) today to ask their advice on what to do while on the bench. The chap I spoke to recommended taking NO salary while not actively working - just use dividends.

I was a bit surprised as I thought I was effectively still working (i.e. employed by my own company) so ought to continue taking a salary to keep the tax-man happy.

[PhilAtBFCA]

Paying yourself whilst not working

moony1234

With regards to someone above saying you cant pay yourself if the company doesnt have the money, surely you can pay a salary out of the overdraft?

Not wise obviously but surely this isnt illegal/dodgy

I think this may not be too tax effective. You could borrow less money personally ( and easier probably ) and use that to live on, then pay tax on a salary when the company can afford to pay you.

Mustang

When on the bench, I identify myself as in "Sales mode". All companies have expenses related to their sales staff and i see myself as no different. As long as the expense is in conjucntion with seeking new business then I feel I can justify it!

Yes I think thats a wise move. We have many people who think their company has "ceased to trade" or is "dormant" when they are not working. technically all that has happened is that they are not selling any services. Ceasing to trade may happen later, if no further sales are to be found.

During this interim period of looking for new opportunities the company continues to run, expenses continue to be bourne and deadlines for HMRC and Companies House continue to be required !

Phil

[moony1234]

With regards to someone above saying you cant pay yourself if the company doesnt have the money, surely you can pay a salary out of the overdraft?

Not wise obviously but surely this isnt illegal/dodgy?

If you KNEW you had a contract lined up in x months time and the money would be replenished...

[Mustang]

If your company has no reserves (and please do not count the corp tax and vat as reserves!) then it can't pay, if it has then it can.

If necessary (reserves dry up or are close to....) the Company can get a loan to finance Operational expenses (incl salary) whilst new business is being sought. Why should we be any different from other businesses. This would depend on your bank and your confidence that you will find work. There is risk involved (potentially huge) so you have to be prepared to take the gamble.......!

As always, remember I am not qualified to give this advice!

[Mustang]

Expenses must be legitimate. As expenses are required to be for the purposes of work you might struggle with some when you have no contract.

When on the bench, I identify myself as in "Sales mode". All companies have expenses related to their sales staff and i see myself as no different. As long as the expense is in conjucntion with seeking new business then I feel I can justify it!

Remember.........IANAL!!

[Grinder]

If your company has no reserves (and please do not count the corp tax and vat as reserves!) then it can't pay, if it has then it can.

You can continue to pay company expenses incl salaries out of your corp tax fund. Once it has all gone, you will have made no profit and therefore there would be no c-tax to pay

[The Lone Gunman]

As the other have said.

I have been out for a couple of months, but I am using the company reserves (built up over a few years) to continue to pay salary and the occasional dividend. I do not have any expenses, but the company is also still paying the nursery vouchers for my son.

If your company has no reserves (and please do not count the corp tax and vat as reserves!) then it can't pay, if it has then it can.

You need to be careful with the divvi payments. You have to be sure that you only pay the divs out of profit. You may be asked to justify how you knew the company would make a profit if it had no source of income. It is not realy hard to do, but they may ask.
Just be careful.