Reply to: Salary calc for first timer

[Craig at Nixon Williams]

One final question. Since I am subject to the "income related reduction in personal allowance" (*cough*), I assume that changes the picture? In my case (717T), I assume the notional answer is 7175-ish, but making sure I stay above LEL.

Will you be subject to the reduction in the future? If you keep your gross income below £100k going forwards then you will get to keep your personal allowance. Given you control your salary and dividends the this is achievable - it depends on whether you will need income above this level to pay your bills.

If you can keep your income below £100k then any remaining profits will accumulate in the company until you close it down - at which point you can take surplus funds as capital which may be subject to a lower rate of tax.

If you are married and living with your spouse, it may also be a good idea to gift some shares to them if they earn less than you as it will help keep your income below the £100k level.

Hope this helps!
Craig

[dty]

One final question. Since I am subject to the "income related reduction in personal allowance" (*cough*), I assume that changes the picture? In my case (717T), I assume the notional answer is 7175-ish, but making sure I stay above LEL.

[dty]

Thanks for confirming my thoughts, Craig. I await a reply from my accountant asking them to reconsider their advice in light of my personal circumstances!

[Craig at Nixon Williams]

If you have already earned over £10k from a previous employment this year then generally you would be better off not taking a salary at all from the company until next April. Talk to your accountant and run over your circumstances before making a decision though, if they have your P45 already then they should be able to calculate which is best for you.

Craig

[dty]

re childcare vouchers - what you say sounds correct but I am at exactly the same stage as you, i.e. haven't set up the childcare vouchers yet.

I assume you just pay yourself £243 per month and that will then be non-taxable personal income for you, and a cost on your ltd co balance sheet that reduces your profits & hence corporation tax. Get your accountant to confirm that though, don't take my word for it.

Since you have paid the required NICs for the sake of your state pension this year already, there's no other reason to pay yourself. Also get that confirmed by your accountant too.

Does £100 per month for the accountant cover doing your personal tax return too?

Be a bit careful. You can't pay "yourself" £243 in the sense of it going anywhere near your own bank account! It can only be paid to a voucher provider or direct to a childcare provider (so long as your company has a contract with that provider).

£100 pcm does include my personal tax return, although I'm not sure I'm too happy about letting them anywhere near it. I mean... I already do a SA return (3 in fact - one for my wife and one for my Mum!) so all I need is a couple of extra figures to put on it as far as I can tell!

[adam42]

One has to wonder what exactly they do for £100 pcm if they don't work out what's best for me! It's not even like they're doing the bookkeeping.

This also explains why I'm asking in here as well!

So as I understand it, the £10k recommended by most people is to get you a full NIC contribution for state pension, etc., right? And I guess I already have that (Class A NICs YTD are just shy of £800). After which, taking the remainder as divis is the preferred approach for tax reasons.

Does this in any way impact the salary-addition Childcare Vouchers? Or do I now say that my pay runs are basically £0 salary + £243 in vouchers (paid direct to voucher administrator, of course).

re childcare vouchers - what you say sounds correct but I am at exactly the same stage as you, i.e. haven't set up the childcare vouchers yet.

I assume you just pay yourself £243 per month and that will then be non-taxable personal income for you, and a cost on your ltd co balance sheet that reduces your profits & hence corporation tax. Get your accountant to confirm that though, don't take my word for it.

Since you have paid the required NICs for the sake of your state pension this year already, there's no other reason to pay yourself. Also get that confirmed by your accountant too.

Does £100 per month for the accountant cover doing your personal tax return too?

[Jeremiah@RHJAccountants]

Your accountant should be able to explain the options, although will seldom tell you what to do! If they're not helping you, then maybe shop around for a different one?

Or rephrase the question -"Is the 10K salary what is right for me given my permie earnings? Please provide figures if I take 10K or 0K for the rest of the year."

I agree with this. speak your accountant and they should be able to work this out for you.

As once you give them your P45 then it should be very simple to work out what you would pay in tax if you took a £10K salary for the rest of the tax year.

If they can't do this i would be worried as this is what you pay them for!

[dty]

Well there's no obligation to take a salary, and taking one will probably cost you more in tax.

Your accountant should be able to explain the options, although will seldom tell you what to do! If they're not helping you, then maybe shop around for a different one?

Or rephrase the question -"Is the 10K salary what is right for me given my permie earnings? Please provide figures if I take 10K or 0K for the rest of the year."

One has to wonder what exactly they do for £100 pcm if they don't work out what's best for me! It's not even like they're doing the bookkeeping.

This also explains why I'm asking in here as well!

So as I understand it, the £10k recommended by most people is to get you a full NIC contribution for state pension, etc., right? And I guess I already have that (Class A NICs YTD are just shy of £800). After which, taking the remainder as divis is the preferred approach for tax reasons.

Does this in any way impact the salary-addition Childcare Vouchers? Or do I now say that my pay runs are basically £0 salary + £243 in vouchers (paid direct to voucher administrator, of course).

[mudskipper]

I do have one. And I have asked the question. But the answer thus far has simply been their generic "£10,000" blurb with no consideration for my personal circumstances.

Well there's no obligation to take a salary, and taking one will probably cost you more in tax.

Your accountant should be able to explain the options, although will seldom tell you what to do! If they're not helping you, then maybe shop around for a different one?

Or rephrase the question -"Is the 10K salary what is right for me given my permie earnings? Please provide figures if I take 10K or 0K for the rest of the year."

[stek]

No worries Sorry for the slightly arsey reply.

Get a room you two!

[dty]

Sorry, no, you're right - I'm on the wrong end of some very long days. I'd completely missed that line, so sorry about that

No worries Sorry for the slightly arsey reply.

[vwdan]

I understand this is only my 4th post, and I don't mean to appear rude, but did you read my question? *I* have earned over £10k from my previous permanent role since April this year. According to my P45.

Sorry, no, you're right - I'm on the wrong end of some very long days. I'd completely missed that line, so sorry about that

[dty]

No - your company has earned over £10k. The normal model is that you extract the rest as dividends - not many contractors are living on £10k, but most of them will have something around that number as their salary.

I understand this is only my 4th post, and I don't mean to appear rude, but did you read my question? *I* have earned over £10k from my previous permanent role since April this year. According to my P45.

[vwdan]

Nothing in itself, but I have already earned over £10k this year. Hence the question.

No - your company has earned over £10k. The normal model is that you extract the rest as dividends - not many contractors are living on £10k, but most of them will have something around that number as their salary.

[dty]

What makes you think that the £10k figure won't suit you?

Nothing in itself, but I have already earned over £10k this year. Hence the question.