Salary / Bonus Query

[cojak]

QDOS is not a cheap service. Wouldn't it be more sensible for the poster to post any IR35 queries here until he's up and running?

It would be cheaper but not necessarily more sensible.

Actually it could prove much more expensive in the long run.

[SallyPlanIT]

So Dividend is a no.

Consider what your income will be next and subsequent years. If you have turnover that would put you in the higher tax bracket each year, then unless you are amassing reserves in the company for a future capital distribution, it would make sense to take a dividend in this tax year thus utilising your wife's allowances, as at some stage you will have to pay higher rate tax yourself anyway.

[Old Greg]

Don't forget to get your PI/PL with QDOS and have your contract checked for IR35 everytime..

That better Blasterbates?

QDOS is not a cheap service. Wouldn't it be more sensible for the poster to post any IR35 queries here until he's up and running?

[northernladuk]

Don't forget to get your PI/PL with QDOS and have your contract checked for IR35 everytime..

That better Blasterbates?

[northernladuk]

have you considered putting some in pension?

You haven't understood the thread have you?

[Friday Blue]

have you considered putting some in pension?

[northernladuk]

Any advise on a one off bonus to take her total pay for the year to £7072? Is there a guideline to say what should be the right level of compensation for the employee who does not generate revenue directly, but manages all the admin etc.

Did you miss this?

What is the bonus for? If it paid to maximise your profit extraction then the HMRC may view it as being too artificial. If there is a commercial justification for the bonus payment, then you stand on firmer ground

The fact you want to bonus to meet the exact figure at which the tax changes tells me it isn't a commercial reason.

Regarding paying her. You are business, you should be able to do the sums to work a reasonable amount to pay someone.

How many days a month does she do? (that you can evidence as well, not what you think)
Work out a resonable day rate for an admin person, say £150
Multiply them together.
Bobs your uncle.

[Master]

Thanks all for the response. Special thanks to Clare@InTouch.

So Dividend is a no.

Any advise on a one off bonus to take her total pay for the year to £7072? Is there a guideline to say what should be the right level of compensation for the employee who does not generate revenue directly, but manages all the admin etc.

[Clare@InTouch]

HMRC used to have a page on their website that gave a list of the things they would look for when starting an enquiry re Section 660, and dividend waivers was there. I believe alphabet shares were too.

A lot of pages from the HMRC site disappeared after a Court case regarding how taxpayers should be able to rely on information provided online, with HMRC trying to argue is was just guidance and they shouldn't be held to it. The Court disagreed. I can't remember the exact details, but this page was one of the ones that was taken down as a result.

Have a read through the examples here, page 15 onward: http://www.hmrc.gov.uk/practitioners/guide_sba.pdf

Example 13 – Dividend Waivers
Where a company with few shareholders declares a final dividend when one or more of
the shareholders has waived their right to a dividend in circumstances where other
shareholders may benefit, it is possible the settlements legislation could apply.
For example Mrs H owns 80 ordinary shares in H Limited. Mr H owns 20 shares. In 2000
the company made a profit of £25,000. Mrs H waived her right to any dividend. The
company then declared a dividend of £1,000 per share, and Mr H, who had no other
income, received a dividend of £20,000.
We would apply the settlements legislation in these circumstances. Clearly a dividend of
this amount could not have been paid from the company's profits on all the shares, so the
waiver arrangement enhanced the dividend paid to Mr H. £16,000 of the dividend paid to
Mr H is attributed to Mrs H under section 660A because the waiver was a bounteous
arrangement.

Example 14 – Dividends on certain shares
As in example 13, but in this case Mrs I owns A shares and Mr I owns B shares. Both A
and B shares rank equally. Again profits of £25,000 are made and a dividend of £20,000
is voted on the B shares while no dividend is voted on the A shares.
Clearly by not voting dividends on the A shares (which rank equally with the B shares)
this is a bounteous arrangement as the dividend paid on the B shares could only be paid
if no dividend was declared in respect of the A shares. £16,000 of the dividend paid to
Mr I is attributed to Mrs I under section 660A because the decision to vote dividends only
on certain shares was a bounteous arrangement.

These obviously only apply if profits are limited, but gives a good guide to HMRC thinking on the matter.

[Greg@CapitalCity]

What is the bonus for? If it paid to maximise your profit extraction then the HMRC may view it as being too artificial. If there is a commercial justification for the bonus payment, then you stand on firmer ground. Is she a Director? To be fair the National Insurance implications of making the bonus payment will probably neutralise any corporation tax advantages - in which case, if dividends are your only option, the personal allowance threshold of £7,475 becomes a non-issue - she will pay no personal tax on dividends provided her total gross personal income does not exceed £42,475 (the 10% tax you mention is offset of a 10% tax credit attached to the dividend payment).

I would steer well clear of any form of dividend waiver (ie your wife taking a dividend, and you waiving yours). Speak to your accountant about setting up two different classes of share for you company - this will help smooth your dividend payment issues, while helping keep you clear of any S660 issues.

[northernladuk]

Why do you believe your accountant is not right and what did he say when you asked him about this? Did he not give you the answer you needed to hear??

I am guessing she isn't truely earning that. Booking keeping and some random bits n bobs <> 6K a year but that is another matter.

Are you sure you have fully understood what your accountant is saying? Go back to him, discuss your options, ask him your questions and then do as he says.

[Master]

I started my contract in Nov. Was a permie before. As I have earned more than 40% limit for this year in my prev job, have not been paying myself any salary or dividend. My spouse is not working and is a shareholder and employee of our limited. Through our limited, she is getting £583 / month since November.

To fully utilise her personal allowance for this year, can I pay £4560 (£7475 - (£583 * 5)) as a one off bonus in March? Will it raise any flags in HMRC if one employee gets a bonus?

My accountant suggests taking dividends just for her, but that would mean I have to declare that I do not want to take my share of the dividend and on top of that, her dividend will incur a 10% tax.

Any problems with the bonus? Which of these two options is better. Guidance please.

Thanks in advance.