I own and run a construction company, I met with my Accountant earlier to discuss the year going forward and how best to run my books, one of the issues that came up was my pay as a Director.
They suggested that I register as an employer and run myself through the payroll on a figure of £470 a month as this comes below a certain threshold, they said to do this 12 times over the 12 months, then take more money at year end via a dividend.
I feel confused, can someone please explain to me in simple terms what the threshold is, how this works and the benefits for running it this way? Is it because I have to show revenue payments?
If you didn't understand you should really have asked your accountant. I presume you are running a limited company.
However, the reason for doing this is to pay yourself so that you maintain your NI contributions towards your pension but don't pay tax as your earnings are too low. You can then take money in the form of dividends from the profits you make (if you don't make any profit you can't take any dividend). This is a tax efficient way of paying yourself.
Thanks for your quick response, I make you 100% right, I ran out of time, wanted a 2nd opinion and sometimes its hard to take everything in that is discussed during the time spent there.
I am running a Ltd company and what you have said in simple terms makes clear sense now.
Is this a compulsory thing I have to do as a Director of a Limited Company?
Please can you inform me of the threshold amount that my earnings need to be kept below?
If I didn't want to go down this route but still wanted to draw 500 per month and at the end of the year made nop profit so it couldn't be shown as dividends, what woudl happen then?
I knwo these are basic questions but I appreciate your response.
This practice is frowned upon by the revenue as you are effectively paying no national insurance contributions and no tax on salary.
The thing is that if you don't pay anything in you don't get anything out at retirement! Something to be wary of there.
the figure of £470 if based on coming in below £476.25 which is the lower NI limit (£5715) divided by 12.
This means that your company will not be liable for the 11% employees NI contribution or 12.8% employers contribution.
Paying a dividend at year end attracts tax but not NI contributions.
I've not heard about the revenue doing it for a while (probably because they've got too much work and too few people) but they used to apply the test that you should be able to maintain your lifestyle from salary.
I know that before IR35 came in there were a lot of IT contractors paid below the NI threshold but driving around in brand new BMW's which as you would imagine was like red rag to a bull to the revenue.
You indicate that you are in construction which is not an area that I have any clients in but I know that's its right up there with IT on the revenue's hit list so getting yourself noticed by using drastic measures of earnings management needs to be done with great care.
There is nothing illegal about what you accountant has told you but it is not a path that I would adopt or advise myself.
Hope that this helps,
Shaun.
Please do not construe any of the above as tax advice.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Afternoon everyone. I wouuld have to say I would offer the advice of taking £476 per month via paye in order to take advantage of your personal allowance and to get your 'stamp' credited. Legal dividends are fine to take as long as the proper records are kept. I would say just about every owner managed company in the land does this and hmrc would not look to challege this....however, who knows what is going to happen after the emergency budget!
Apparently the repeal of IR35 has now been put off until at least November so that one is unlikely to feature even a mention in the budget.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I doubt that there will be any 'giveaways' Shaun, they can be tough and just say that the books were worse than they had expected! Though I'm hoping for a reasonably quick route to the £10k pa rate, but somehow don't think that it will happen too quickly!
not expecting any giveaways. If we get anything at all then they'll just take it back somewhere else.
The 20% VAT rate is now considered a done deal even before official announcement.
On the IR35 front it's really that the legislation is unworkable and costs more to police than it brings in. The whole thing was badly thought through and poorly implemented.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Do you really think that the £10K threshold will make one iota of difference to those on low incomes. When they raise the threshold then the working tax credit they are already getting will be reduced or withdrawn. It makes good headlines and to be honest it should save money by not having to administer taking money away with one hand and giving it back with the other which I have always thought to be completely daft but no doubt we shall see.
I mainly look forward to it as I have plenty of clients earning a profit between 10 to 15k, and with a larger pa it will show less tax and then they think I'm great! Oh I love this coalition!
