Reply to: £500.77 per month

[Taxless]

Taxless, yes I do use an accountant. This figure was suggested to me prior to the accountants. It was directed as a means of showing that the yearly income was a reasonable amount.

But if I can use the suggested amounts then I would do so. This sum that I take is gross and the total year end(salary and divs) is aimed at keeping it under the higher tax threshold.

OK. Firstly, you do NOT have to show that the yearly income was "reasonable". Where you have your own Ltd company it is highly unlikely that you have a separate contract of employment. If you did, then you need to pay at least NMW rates and if you don't have a contract, you can pay yourself whatever you want, including ZERO.

This applies to all industry sectors and lots of directors take ZERO for various reasons.

I wonder why anyone would suggest "reasonable"? Possibly because they suspect (fear) that you are caught by IR35 and hope a "reasonable" figure will hide you from HMRC's prying eyes?

If they and/or you are that worried about IR35 then maybe it is time for you to reconsider how you are operating and change to put the matter beyond doubt, or at least improve things as far as is possible.

Now that you have appointed accountants, what is their take on this? What were the crucial factors that made you decide to appoint them rather than any other firm?

You should expect your accountants to be proactive rather than reactive and this would include, as part of the take over process, "how have you been remunerating yourself and can we suggest an alternative method than is more tax efficient".

You pay your accountant - Challenge them.

On the limited information available then you can certainly change your current remuneration package, have the same amount in your pocket, keep out of higher rate tax and save tax overall (company and individual combined).

[Slumdog]

By going over the suggested minimum you are paying more employers and employees NIC and PAYE tax than is strictly necessary, but your company will pay less in Corporation tax.

Is the £1,000 gross before employees NIC & PAYE, how much do you draw in dividends (if any), how much (net of tax) do you require to meet your ongoing committments each month.

You seem to imply that you use an accountant, so I would suggest that you ask them whether the remuneration package they have suggested is the most beneficial for you and ask about the use of minimal salaries and dividends.

On the back of their answers you can decide if their advice is worth the money you are paying for it.

Taxless, yes I do use an accountant. This figure was suggested to me prior to the accountants. It was directed as a means of showing that the yearly income was a reasonable amount.

But if I can use the suggested amounts then I would do so. This sum that I take is gross and the total year end(salary and divs) is aimed at keeping it under the higher tax threshold.

[Taxless]

So maybe I have been mis-advised. I currently take approx 1000pm.

Am I losing a lot by paying this salary to myself?
Should I reduce this to the amounts suggested on this post?

By going over the suggested minimum you are paying more employers and employees NIC and PAYE tax than is strictly necessary, but your company will pay less in Corporation tax.

Is the £1,000 gross before employees NIC & PAYE, how much do you draw in dividends (if any), how much (net of tax) do you require to meet your ongoing committments each month.

You seem to imply that you use an accountant, so I would suggest that you ask them whether the remuneration package they have suggested is the most beneficial for you and ask about the use of minimal salaries and dividends.

On the back of their answers you can decide if their advice is worth the money you are paying for it.

[Slumdog]

So maybe I have been mis-advised. I currently take approx 1000pm.

Am I losing a lot by paying this salary to myself?
Should I reduce this to the amounts suggested on this post?

[blacjac]

We are sorry to make you have this impression.
We will give more detailed answer next time with justification.

Why not do that now and justify your post about £602 per month?

We are sorry to make you have this impression.
We will give more detailed answer next time with justification.

Why do you suggest that? One line advice like yours is useless without a real justification.

I get the impression you are just spamming the board so that people get to see your name all over the place.

[JamJarST]

£602 a month is £7,224 a year, which is nigh on the level for the Primary NI threshold of £7,228 (£139 per week).

If you put that into a payroll program though it will create a small NI liability. £589 a month won't as it's based on the Secondary NI threshold (the point at which you get credit for NI without paying it) of £136 a week.

HM Revenue & Customs: National Insurance Contributions

NI Calculator on the HMRC website here if you want to try it at £602 and £589 HM Revenue & Customs: National Insurance calculator 2011-12

Thanks Claire

[Clare@InTouch]

Why do you suggest that? One line advice like yours is useless without a real justification.

I get the impression you are just spamming the board so that people get to see your name all over the place.

£602 a month is £7,224 a year, which is nigh on the level for the Primary NI threshold of £7,228 (£139 per week).

If you put that into a payroll program though it will create a small NI liability. £589 a month won't as it's based on the Secondary NI threshold (the point at which you get credit for NI without paying it) of £136 a week.

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

NI Calculator on the HMRC website here if you want to try it at £602 and £589 http://www.hmrc.gov.uk/calcs/nice.htm

[JamJarST]

we usually suggest our cusomers 602 /month

Why do you suggest that? One line advice like yours is useless without a real justification.

I get the impression you are just spamming the board so that people get to see your name all over the place.

we usually suggest our cusomers 602 /month

My accountant last year recommended that i take out £500.77 per month as salary, and the rest as dividends. This also means (i think) that i still get build up a state pension, yet don't pay any NI (or income tax).

This year i plan on using one of those online web 2.0 accountants, but i have to set my salary.

Any ideas where the £500.77 amount is calulated from? $some_allowance / 12 = £500.77??

Should it be a different amount this year due to tax allowance increases?

[kingcook]

You can earn up to the secondary NI threshold and no NI will be due, and that's currently £136 a week, which equates to £7,072 = £589.33.

You could try running it through a payroll program, or the free HMRC software to see how it works.

HM Revenue & Customs: National Insurance Contributions

Thanks Clare! This is exactly what i needed.

[DaveB]

I see what happened - you're putting NI table letter L. This is probably incorrect as you should be on table A.

The letter on your tax code has nothing to do with NI - try it on table A and it works as expected!

Bingo! thanks very much Clare. Confusing Tax letter with NI letter.

[Clare@InTouch]

I was playing with the at the weekend as it happens.

Put £589 monthly salary into the online NI calculator using my code letter (L) and it comes back as showing a refund being due.

Corporation Tax, yes.
Income Tax, yes.
VAT, yes.
National Insurance, Not a bob at the moment.

If I can't get my head round it soon I'm going to go look for a payroll co. to do it for me.

I see what happened - you're putting NI table letter L. This is probably incorrect as you should be on table A.

The letter on your tax code has nothing to do with NI - try it on table A and it works as expected!

[DaveB]

You can earn up to the secondary NI threshold and no NI will be due, and that's currently £136 a week, which equates to £7,072 = £589.33.

You could try running it through a payroll program, or the free HMRC software to see how it works.

HM Revenue & Customs: National Insurance Contributions

I was playing with the at the weekend as it happens.

Put £589 monthly salary into the online NI calculator using my code letter (L) and it comes back as showing a refund being due.

Corporation Tax, yes.
Income Tax, yes.
VAT, yes.
National Insurance, Not a bob at the moment.

If I can't get my head round it soon I'm going to go look for a payroll co. to do it for me.

[Clare@InTouch]

Clare,

Can i ask how you came to work out the figure of £589?

For the sake of argument, what if i paid myself £1 less per month? i.e. £588?

You can earn up to the secondary NI threshold and no NI will be due, and that's currently £136 a week, which equates to £7,072 = £589.33.

You could try running it through a payroll program, or the free HMRC software to see how it works.

HM Revenue & Customs: National Insurance Contributions