Reply to: Minimum Wage - New Guidelines

[ASB]

This is why (in 09/10) £5,720 is the "magic number" you're talking about. Paying yourself £6k doesn't gain you any more entitlements (neither does paying yourself £60k).

Strictly it does. Serps or S2P or whatever it's called.

There is also the contracted rebate if one is contracted out.

What it will therefore get you is more entitlement, what it won't get you is value though....

[Sally BFCA]

I have been advised by my accountant to do just that, 5,700 as salary = no NIC or PAYE.

However I am very interested in a reply from Sally as that is exactly what I have done.
I have spent this year mainly working on plan B and living off savings, which has meant only 5,700 income from my Ltd, which has not turned over enough to pay me any more, even though I have worked a 40 hour week.

The tax credit people didn't seem to mind this at all when working out what I was entitled to...... (and yes, I told them about my savings as well).

__________________

Good advice tax wise from your accountant.

It would appear then (referring back to my quote on Business Link website re Directors and NMW) that to claim Tax Credits isn't based on your hourly rate being in line with NMW... presumably because you are a Director and do not have a contract of employment.

Interesting

[blacjac]

If you are making a claim for any state benefit, you have to be paid the NMW, otherwise your company is breaking the law!

This does not apply if you are the director and not making any state benefits claim, you can pay yourself whatever rate you choose.

Ideally you should have a salary of £5720 so that your NI record is up to date, but if the company does not have the money, it cannot pay you and I guess your employment would cease.

But, you don't need to be working 40 hours a week to get that money. So (apart from it being tax fraud), you could claim that you were earning £5720 a year, working 19 hours a week (or whatever that works out to) and still be entitled to working family tax credit.

I would suggest, however, that the risks do not warrant the reward.

OK, so what if you don't have a high enough turnover to pay NMW yet?

Like I said, this is the position I have been in this year and both Business Link and the Chambers of Commerce advised me to claim working tax credits, which I have.

[Maslins]

Anyone? I'd rather point my accountant to something on the HMRC website than a CUK blog post.

This £5700 figure, is that a 'magic number' for tax-free allowance or something to do with NI? I don't want to screw up my state pension for a few quid in saved tax now, crappy as it's likely to be in 40 years.

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

In short, if you pay over the "lower earnings limit" each year you're getting the nod for your state pension etc. In 09/10 this is £95/week, ie £4,940/year.

If you pay under the "primary threshold" you don't actually have to pay any NI. In 09/10 this is £110/week, ie £5,720/year.

So paying £5,720 gives you full entitlement, without you actually having to pay a penny to HMRC. This is why (in 09/10) £5,720 is the "magic number" you're talking about. Paying yourself £6k doesn't gain you any more entitlements (neither does paying yourself £60k).

Income tax is slightly different, in that the personal allowance is currently £6,475, so you can earn up to that without having to pay any income tax, but if you're paid over £5,720 you'll probably pay NI. They did try to bring these two levels together, but then there was all the upset over the disappearing 10% band so they tweaked it again.

[Sally BFCA]

The following is a quote from the business link website, directed from HMRC website.

Company directors
The NMW does not apply to company directors unless they also have contracts that make them workers. Company directors are office holders in common law and can do work and be paid for it in that capacity. This is true no matter what sort of work is done or how it is rewarded.

However, company directors who also have employment contracts will need to be paid the NMW for work done under that contract. If a company director is unsure whether they have entered into an employment contract with their company they may wish to take independent legal advice.

The salary level of £5720 is the amount under the band where you start to pay NICS. Thus, your pension fund is credited and you do not pay additional contributions.

[d000hg]

I'll maybe chase them about this on Monday - is this advise from HMRC available on t'web anywhere for me to link to?

Anyone? I'd rather point my accountant to something on the HMRC website than a CUK blog post.

This £5700 figure, is that a 'magic number' for tax-free allowance or something to do with NI? I don't want to screw up my state pension for a few quid in saved tax now, crappy as it's likely to be in 40 years.

[TheFaQQer]

If you are making a claim for any state benefit, you have to be paid the NMW, otherwise your company is breaking the law!

But, you don't need to be working 40 hours a week to get that money. So (apart from it being tax fraud), you could claim that you were earning £5720 a year, working 19 hours a week (or whatever that works out to) and still be entitled to working family tax credit.

I would suggest, however, that the risks do not warrant the reward.

[Sally BFCA]

If you change your salary from NMW to say 6000 , will that flag up on hmrc's radar ? I don't fancy a paye investigation.

I don't see any reason why they would as this is a fairly standard salary for a company providing services.

[Andy2]

If you change your salary from NMW to say 6000 , will that flag up on hmrc's radar ? I don't fancy a paye investigation.

[Sally BFCA]

Are you 100% sure on that?

what if you don't have enough turnover in the year to pay more than say 5k?

If you are making a claim for any state benefit, you have to be paid the NMW, otherwise your company is breaking the law!

This does not apply if you are the director and not making any state benefits claim, you can pay yourself whatever rate you choose.

Ideally you should have a salary of £5720 so that your NI record is up to date, but if the company does not have the money, it cannot pay you and I guess your employment would cease.

[joey122]

You have to declare dividends as income. You don't earn £5700 a year.

HTH

Well not if you dont need the money and leave them in the company....

Then wind down the company and take as capital gains

A lot of people seem to be doing this

[DiscoStu]

As a single male earning 5700 a year they reckon I am entitled to £58 a week

Is anyone actually claiming tax credits whilst earning £500 a day??

Surely the HMRC must know about this??

You have to declare dividends as income. You don't earn £5700 a year.

HTH

[Lumiere]

Any point paying yourself round numbers £6000 = £500 x 12 - not much extra tax/NI (circa £60 per year) and you still get state pension ?

[trsisko]

Is it ok to pay my monthly salary set by my accountant at various times of the year for example if im short or havent earned any money from Jan-May I pay myself Jan-May minimum salary in September?

[joey122]

As a single male earning 5700 a year they reckon I am entitled to £58 a week

Is anyone actually claiming tax credits whilst earning £500 a day??

Surely the HMRC must know about this??

No - it's wrong.

There is an additional element available for those that work more than 30 hours per week, but according to the website, you would be eligible for something with

a) 2 kids
b) salary of £5700
c) working 20 hours a week
d) no other income

=> £3606

(Which is completely unrealistic, since you are unlikely to be surviving on that little income with two kids, but there you go).