Reply to: tax-free directors salary

[rrp]

I've read through this thread due to a recent change in accountant suggesting different things

Accountant 1 suggested a salary of around 7.5k per year, meaning I was liable to a little NI payments.
Accountant 2 tells me to take a salary of £7072 as this will incur no personal NI but still provide an NI 'stamp'.

I think this is exactly what this thread states as well, although there is some debate going on.

Currently I am sticking to Accountant 2 suggestion - anyone think this is wrong and I won't qualify for 'stamp'??

Obviously figures will change after April.

[Contreras]

You will have to submitted a NIL monthly or quarterly PAYE return. I didn't bother for 6 months, then got a letter from HMRC asking why i hadn't submitted any returns.

Yes I get the nastygrams too. Don't have one to hand but I believe the context is that you haven't made any PAYE payments, rather than not filed a return.

Point being that in the month where you trip over the £7072 threshold it's just a case of transfering the owed PAYE (e.g. £21.11 for a salary of £7225) into HMRC's account, and then having made a payment there isn't any PAYE return to file (NIL or otherwise) for that month.

Quite simple really... unless I'm missing something.

[kingcook]

There is no "quarterly PAYE return" to file as such, even if I was taking salary monthly - just pay what is owed. Well I suppose the other difference is that I don't need to remember to file a nil return to avoid the HMRC nastygram about no PAYE paid that month.

You will have to submitted a NIL monthly or quarterly PAYE return. I didn't bother for 6 months, then got a letter from HMRC asking why i hadn't submitted any returns.

[Contreras]

I take salary as an annual lump sum and unless I'm mistaken there isn't really any extra effort required to paying £7225 vs. £7072.

The company pays me £7225 and then makes an online bank transfer of £21.11 to HMRC's account.

And that's it?...

There is no "quarterly PAYE return" to file as such, even if I was taking salary monthly - just pay what is owed. Well I suppose the other difference is that I don't need to remember to file a nil return to avoid the HMRC nastygram about no PAYE paid that month.

I'm using the HMRC Basic PAYE Tools (what used to be PAYE CD-ROM) to file the end of year P35/P14 online.

[TheFaQQer]

After reading all these comments, I am wondering why my accountant is advising for £12k salary per annum instead of “tax code value”?

My Accountant's view is, paying 12K will cover national minimum wage.

You've just answered the first question.

Is this necessary?

No, unless you are an employee.

Secondly, Paying no NI means I am not eligible for state benefits or sick pay etc (In case if I need to claim)?

Correct.

Hence I should pay 12K instead of tax code value.

No - you should pay at least the threshold to get the the NI stamp. If you read this thread, you're better off paying £7072 so that you don't pay income tax, but reduce your corporation tax liability. Also in this thread, is a debate about whether to pay £7225 instead of the recommended £7072.

What are your views please?

You need to do some more reading.

[legal]

After reading all these comments, I am wondering why my accountant is advising for £12k salary per annum instead of “tax code value”?

My Accountant's view is, paying 12K will cover national minimum wage. Is this necessary? If yes than people who pays around £8k won’t comply with this requirement?

Secondly, Paying no NI means I am not eligible for state benefits or sick pay etc (In case if I need to claim)? Hence I should pay 12K instead of tax code value.

What are your views please?

[TheFaQQer]

PS: And you are less likely to be selected for IR35 investigation because you pay employers NICs! Unlike those filthy tax avoiders.

And your evidence for that is.....?

[kingcook]

It is £14 extra, but you have the hassle of 1 PAYE return per year - for the last quarter.

PS: And you are less likely to be selected for IR35 investigation because you pay employers NICs! Unlike those filthy tax avoiders.

That is a good point actually. HMRC's selection process could be:

select * from limited_company where close_company = 1 order by nics_paid

[Kugel]

So, confused now. So its £14 extra then but you have the hassle of PAYE returns every quarter?

Nah, sod that for £14.

It is £14 extra, but you have the hassle of 1 PAYE return per year - for the last quarter.

PS: And you are less likely to be selected for IR35 investigation because you pay employers NICs! Unlike those filthy tax avoiders.

[psychocandy]

So, confused now. So its £14 extra then but you have the hassle of PAYE returns every quarter?

Nah, sod that for £14.

[Kugel]

This is looking like too much of a blag for me. I'm out.

No pain, no gain.

[Kugel]

Correct. Plus it's not actually in your pocket, the saving is in CT so it's still in the company. If you normally take dividends right up the 40% band then you will have to reduce them accordingly to remain under it because your salary has gone up. If you don't then you'll be paying 25% tax on that £14.42.

Down to 3 pints.

You get extra £156 in salary per year. Correspondingly company profit is reduced by £176.98. This results in net dividends reduced by £141.58 and gross dividends reduced by £157.31.

As you can see your total gross income is actually reduced by £1.31. It is 4 pints after all.

[kingcook]

Actually... the extra £153 salary you'd be taking (£7225 - £7072) would mean that you'd taking £153 less in lower rate dividends.

This is looking like too much of a blag for me. I'm out.

[doodab]

I am not a regular employee. I am a Director.

Indeed. So the liability for NICs depends on when you decide how much you will be paying yourself, when it's paid to you or if you have a "directors account" when it's credited to the account and when you draw money from the account. You need to redo the calculation every time you make a payment. Depending on how you date things it's quite possible that the full NIC liability on the salary could be due in month 1.

[northernladuk]

Correct. Plus it's not actually in your pocket, the saving is in CT so it's still in the company. If you normally take dividends right up the 40% band then you will have to reduce them accordingly to remain under it because your salary has gone up. If you don't then you'll be paying 25% tax on that £14.42.

Down to 3 pints.

You then get a gig in London and you are down to half a shandy.. HTH