Reply to: Salary/Income?

[Bellona]

I know I'd rather have that in my back pocket than give it to HMRC.

+1 although unlikely to go in my back pocket - more likely to be seen as "additional income" and spent on frivolities

[Sausage Surprise]

We recommend £12,000 as it's in line with national minimum wage (NMW), although have a fair few clients who decide to take less or sometimes more.

I am aware that NMW doesn't apply to a Director unless they are employees or workers (and a director or secretary is not an employee for the purposes of the NMW unless he is engaged under the terms of an employment contract).

But, in some cases a directors' service contract could be construed to also be an employment contract unless it's drawn up correctly, and you may actually want them to be deemed to be an employee anyway if you want to claim Employment Rights such as SMP, SSP, Tax Credits, Universal Credit, Unfair dismissal etc. Some benefits are paid based on the number of hours worked in Employment. So you can’t claim certain benefits unless you’re an employee, and if you’re an employee then NMW applies.

The difference between £12,000 and £7,692 works out at about £1,000 extra in tax & NI overall, so it’s not a massive difference. That may well change next year for the better when the Employer’s NI changes come in too.

I know I'd rather have that in my back pocket than give it to HMRC.

[zedAccounts]

You can pay yourself an amt above the min salary such that total EE & ER NIC + Income Tax is about the same as the CT on the excess amt. This way your co looks like it's paying some NIC which you may (or may not) prefer.

ZED.

[Jessica@WhiteFieldTax]

I think that's only if you want their Professional Fee Protection insurance, it's nothing to do with their own firm's insurance.

Yep, our Professional Fee Protection underwriters (AKA Tax Enquiry Insurance) preferred £12k.

Other than that its an intuitive level that feels about right. It does mean a small amount of NI payable, some people would prefer a PA level salary and not pay any - thats cool, your company, your choice...

[TheCyclingProgrammer]

I think that's only if you want their Professional Fee Protection insurance, it's nothing to do with their own firm's insurance.

Yes, edited my post to word it better.

[Clare@InTouch]

I was curious about this; I can't think of any logical reason to do this unless you feel you need to comply with NMW law which I'm sure we don't if there is no formal employment contract.

That said, a quick glance at Whitefield's website seems to indicate its to do with their insurers?

Tax: How does it all work in practice

I think that's only if you want their Professional Fee Protection insurance, it's nothing to do with their own firm's insurance.

[TheCyclingProgrammer]

Why do you recommend £12k?

I was curious about this; I can't think of any logical reason to do this unless you feel you need to comply with NMW law which I'm sure we don't if there is no formal employment contract.

That said, a quick glance at Whitefield's website seems to indicate its to do with the underwriters of some insurance they offer?

Tax: How does it all work in practice

[Clare@InTouch]

We recommend £12,000 as it's in line with national minimum wage (NMW), although have a fair few clients who decide to take less or sometimes more.

I am aware that NMW doesn't apply to a Director unless they are employees or workers (and a director or secretary is not an employee for the purposes of the NMW unless he is engaged under the terms of an employment contract).

But, in some cases a directors' service contract could be construed to also be an employment contract unless it's drawn up correctly, and you may actually want them to be deemed to be an employee anyway if you want to claim Employment Rights such as SMP, SSP, Tax Credits, Universal Credit, Unfair dismissal etc. Some benefits are paid based on the number of hours worked in Employment. So you can’t claim certain benefits unless you’re an employee, and if you’re an employee then NMW applies.

The difference between £12,000 and £7,692 works out at about £1,000 extra in tax & NI overall, so it’s not a massive difference. That may well change next year for the better when the Employer’s NI changes come in too.

[DirtyDog]

As none of them have replied, I'll have to do.

Across c300-350 PSCs, the %s are roughly 90% take a salary at our suggested level, £12k, and the rest as dividend. Of the other 10% it splits evenly between (a) declaring inside IR35 (b) higher salary / lowe dividend and (c) PA level salary and rest as divi.

Why do you recommend £12k?

[GB9]

Ok, i'm in the minority.

[Sausage Surprise]

I have always taken a larger salary as PAYE and then paid dividends from what was left. Most people I know do the same. (Not all).

And yes, I know it isn't the most tax efficient way.

That's just weird

[Sausage Surprise]

I fundamentally disagree with this. I dont believe most do. Maybe one or two of our esteemed accountants could give an insight?

Err...I do, as does nearly every contractor I know.

[Craig at Nixon Williams]

I fundamentally disagree with this. I dont believe most do. Maybe one or two of our esteemed accountants could give an insight?

The vast majority of our clients do take a salary to the employers NI threshold on the basis that it is tax efficient and shouldn't need to make any payments to HMRC during the year (assuming a standard tax code).

Craig

[TheCyclingProgrammer]

One useful scenario where salary counts and dividends do not is when calculating how much YourCo is entitled to pay in terms of child care (either directly or using vouchers).

[Jessica@WhiteFieldTax]

As regards OP, context is everything. Depends who is asking and circumstances, important thing is to be transparent. Eg declaring to CSA that you only earn 7k is unethical.