A client has been employed up to now and has earned about £23k so far this year and has paid about £7k tax. He is now a director/employee of his own company. what is the ideal amount to pay him? What is the best amount to minimise tax whilst still paying his stamp for his pension? I haven't had this situation before so any advice would be appreciated. Thanks.
What sort of limited company? A normal one or personal service company (PSC)? Are they likely to be caught by IR35 legislation? (For example (worst case) have they stopped being an employee and started working in the same (or similar) role for the same company through a limited company in order to avoid N.I.? (reasonable approach at 25.8%!).
If a legitmate company (employee's, risks, etc) then the director has already been paid more than enough for this year as salary and dividends should be looke at for the remainder.
If IR35 applies then 95% of revenue after allowable expenses (which are very restricted to only those expenses that would have been allowable for any employee of a company) is deemed salary.
HTH,
Shaun.
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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.
No, no IR35, he's started a new legitimate business with other employees. I thought as much, just wanted to make sure he doesn't have to pay NI each month in the year. I know it's obvious but I started thinking about it too much and got lost in my head. Thanks muchly.
For future reference - the ideal amount to pay a Director 'this year' so that they don't pay tax, but are within the NI 'credits' area, but not paying any, is around £591 per month.
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Carol Saunders Lady of Ledger Book Keeping Telford, Shropshire
A client has been employed up to now and has earned about £23k so far this year and has paid about £7k tax. He is now a director/employee of his own company. what is the ideal amount to pay him? What is the best amount to minimise tax whilst still paying his stamp for his pension? I haven't had this situation before so any advice would be appreciated. Thanks.
If the £23k income and £7k tax is for the current tax year then will have made their full contribution for the year so wouldnt be worth putting anything through for salary until tax year 2014/2015.
Maximum monthly amount you can pay in the current tax year is £641 per month or £7692 per year but as said above not worth putting anything through for them until April next year.
Just a thought. Should I have the director listed as an employee but just not pay him anything or should I not put him on the payroll until he gets a salary next year? He is paying another member of staff in the meantime. Thanks
