Reply to: How much salary do you take from your Ltd?

[XLMonkey]

Ok to me this sounds like a silly question but I'll ask anyway .

For argument's sake lets say I have a Ltd company and it makes £5,715 gross... if I pay that to myself as a salary I keep all of it as there is no NI/PAYE, and no corp tax either as its an expense. However if I paid that as a dividend I'd have to pay 21% corp tax first and therefore lose out on £1,200?

Not a silly question at all. You may be better off if your total income is below 5,715; but don't forget that total income will also include any other money you earned whilst you were abroad (since you will probably have to pay income tax on that as well).

You are right that salary is treated as an expense, so you are avoiding 21% corporation tax. However, you are incurring both employers and employees NI contributions as well as income tax. So, the marginal tax rate on every PAYE pound you pay yourself is:

0 - 5,715 : 0%

Between 5,715 and your personal allowance level (usually 6,475) : 23.8%
(11% employee NIC plus 12.8% employer NIC)

Between your personal allowance to the upper earnings limit for NIC (usually 43,888) : 43.8%
(11% employee NIC, 12.8% employer NIC, 20% income tax)

As a result, you are better off paying the corporation tax on any income above 5,715, as compared with paying yourself a higher salary.

So do we just need to advise the HRMC yearly then ?

[Olly]

Yep but I didn't phrase it like that....I just said I don't work many hours and it's likely only to be in the 4th quarter I owe them anything. All completely true.

I'm sure they do have "factors" to help them guide investigations but can't imagine that being one of them. Must be quite a few little used companies in similar boat. Doesn't strike me as a good pointer.

If I were HMRC looking for contractors I'd be searching my DB for Ltds with high turnover, low wages bill, high share dividend relative to wages etc etc et
.....frequency of NI declaration would not need to be part of my query.

[Lumiere]

You can do it online instead if that makes it easier:

http://www.hmrc.gov.uk/payinghmrc/paye-nil.htm

Yep, that's what I do. Still one has to remember to do it every month before the deadline, so the process is open to failure.

I am hesitant to call the Revenue as it may put me on their radar. Maybe I am being over paranoid, but it looks like admitting "I am intentionally not going to pay you any NI this year" rather than "Sorry guys, no NI this month".

[Olly]

I will ask a question too then.

Is there any way to avoid sending the Nil Payslips monthly if you are PAYEing yourself £5715 per year? I assume you can call the Revenue and let them know that you will not be paying any NI this year, but is it a wise thing to do ?

Yes, I called them, said it was daft and they changed it to yearly.

P.S. Paying myself 6K a year so I don't come up in any searches for £5715

Unfortunately that means a I have to remember to pay a little NI once a yr.

Not answering some of the questions from others as they've been covered too many times before.

[Clare@InTouch]

I will ask a question too then.

Is there any way to avoid sending the Nil Payslips monthly if you are PAYEing yourself £5715 per year? I assume you can call the Revenue and let them know that you will not be paying any NI this year, but is it a wise thing to do ?

You can do it online instead if that makes it easier:

http://www.hmrc.gov.uk/payinghmrc/paye-nil.htm

[Lumiere]

I will ask a question too then.

Is there any way to avoid sending the Nil Payslips monthly if you are PAYEing yourself £5715 per year? I assume you can call the Revenue and let them know that you will not be paying any NI this year, but is it a wise thing to do ?

so when is the best time to take your salary out of the company ? monthly or yearly ? what do most people do ?

[gehan.g]

Ok to me this sounds like a silly question but I'll ask anyway .

For argument's sake lets say I have a Ltd company and it makes £5,715 gross... if I pay that to myself as a salary I keep all of it as there is no NI/PAYE, and no corp tax either as its an expense. However if I paid that as a dividend I'd have to pay 21% corp tax first and therefore lose out on £1,200?

I ask as I was out of the country most of last year and have been doing freelance work the last four months. I never sorted out a salary because the plan was to go into a normal salaried job and so I figured I'd just pay out divs on the freelance work I did. As it turns out the freelance work, which I figured would have been maybe a month, has turned into four and I won't be in a PAYE job until May!

Anyway if I'm losing out of £1,200 by paying everything as divs the question is, can I just give myself £5,715 today as a salary and sort it out with HMRC later or will I just be causing myself a massive problem? Although for £1,200 it might be worth it..?

Thanks!

[Clare@InTouch]

The thing I dislike most about paying £11k is my take-home changes half-way through the year as total pay reaches the threshold. Generally try to live off salary so this makes budgeting a pain.

That's because you're a director, and NI therefore only kicks in when you reach the limit rather than being spread across the year.

Why not ask your accountant to calculate the wages so that you get the same net pay each and every month - that way you can even set up a DD to make life easier.

[malvolio]

Then again SJD advised me to take £750 net monthly. Heigh ho...

It's really not a problem though. Accountants can only offer opinions, and SJD is not a single accountant. I'm sure any of them will give you an explanation of their stance if you ask them.

[Wanderer]

Maybe different regions have different figures.

Same region....

It does worry me that there seems to be no accepted 'right' figure, even within one accountancy group.

Are you trying to suggest that tax law and accountancy is a very grey area? Surely not.

As for national minimum wage mentioned by others, that doesn't apply if you are a company director with no contract of employment.

[d000hg]

The thing I dislike most about paying £11k is my take-home changes half-way through the year as total pay reaches the threshold. Generally try to live off salary so this makes budgeting a pain.

[Maslins]

I can see the logic of £5,715, £6,475, NMW, and even just about £20-30k for the "play it safe" brigade...but where has £7.5k come from?

[mudskipper]

They recommended 12k to me.

How odd. Mine was signed SJD Accountancy (South). Maybe different regions have different figures.

It does worry me that there seems to be no accepted 'right' figure, even within one accountancy group.