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DIRECTOR'S REMUNERATION POST 5 APRIL 2014

With the end of the 2013/14 Tax Year looming we have been giving some thought as to the optimum level of Director's Remuneration for next year.  For this current Tax Year many advisers have suggested using £633 or perhaps £650 per month.  This was mainly to minimise any Employer's (13.8%) and Employee's NIC (12%). 

However with the introduction of the Employer's Allowance (Employer's NIC Holiday up to £2,000), Director's Remuneration of £833.33 would appear to be the optimum amount. Such an amount would obtain Corporation Tax Relief (20%) with PAYE Tax (0%), Employee's NIC (12% over £7,956 (£153 pw)) but no Employer's NIC.

Has anybody any thoughts / comments?

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01st Apr 2014 13:12

Assuming a normal Tax Code for the Director, he/she not being an otherwise Higher Rate Taxpayer and no other Director's / Employees (against whose remuneration the Company could otherwise utilise the Employer's Allowance).

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01st Apr 2014 13:42

Just in time

You are obviously a "just in time" planner rather than a forward planner. :-)

Lots of us have been discussing this.  Here is one thread.  There are several others if you search for them.

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01st Apr 2014 15:43

while

your directors pay at £833 is correct for a salary of £10k, your employee NI's at £153 per week is a bit high..

I make that payment £20.44 a month.

 

 

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By BananaMan
01st Apr 2014 16:55

£7956 = £153 pw

£7956 = £153 pw

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01st Apr 2014 23:17

I have reviewed this and £660 PCM is my chosen amount

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02nd Apr 2014 04:06

BananaMan and mikeyban

The OP is right.

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By BananaMan
07th Apr 2014 10:19

Yes

petersaxton wrote:

The OP is right.

 

Yes, that is exactly what I was saying 

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By Old Greying Accountant
02nd Apr 2014 14:16

In the OP's suggestion ...

... the saving is £163.52 per director, up to a maximum of 7 directors, assuming as mentioned none is a higher rate tax payer.

What is interesting, and more tricky is what if you are a sole trader or partnership paying wife(s) on PAYE scheme. If you are in higher rate previously not worth paying above PA as you would save 42% but spouse would be taxed 40.28 (allowing for 40% relief on ER's NI), given that the PAYE is due sooner than SA the saving is mimimal, but now if you paid wife £22448.75 you would take £12448 from 42% to 32%, quite a saving, as long as you were a higer rate tax payer - if not you would be swapping 29% for 32%! 

Could be tricky with RTI as you can't wait and see anymore if you are borderline HR.

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02nd Apr 2014 11:30

There are a few more things

There are a few more things to consider in my opinion.

 

If the company has employees and the employer's NI will be in excess of £2,000, then there will be both employee's and employer's NI to pay and £660 will be marginally more tax efficient.

 

If the director has BIK's then this will utilise part of his personal allowance, again meaning a salary of below £833 may be more tax efficient.

 

Some clients just won't be disciplined enough to make the monthly payment of PAYE on time meaning potential interest and penalties.

 

I think you need to consider each client individually this year and talk through the options with them before reaching a decision. I don't think a "one cap fits all" approach is appropriate.

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02nd Apr 2014 16:38

Annual earnings for director
MJ Green - regarding paying the NI each month, what's to stop it being an annual payroll, processed in March each year, using the director's annual earnings period approach? That way when the final submission is made for a tax year the client can be advised to make the NI payment.

That said, it could well be thatvsome clients won't value the £163 saving sufficiently to make all this optimisation worthwhile anyway.

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By Old Greying Accountant
02nd Apr 2014 17:05

As an aside ...

... if you payroll wife £153 pw all year and give her an additional £2,044 bonus for beig a good girl in week 52, her NI is only £106.08 for the year = 5.19% on the 2044 (10000 - 7956), but if I paid £192.30 pw her NI would be £245.23 for the year (12% on 2044).

So, director husband on £10k employing wife on £10k could save £466 - just about covers the fee for running a weekly payroll :o)

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02nd Apr 2014 17:08

I agree

if there's various issues to consider:

benefits

other earnings

other income

other employees

state pension

but if it's a one/two person band and the salary/dividend decision is easy then £10,000 per year is the optimum.

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03rd Apr 2014 10:44

Annual earnings for director

James Reeves, I agree that your suggestion would indeed eliminate the monthly issue regarding the payment of NI, however you would have to carefully monitor the impact on the director's loan account.

 

Under RTI the payroll has to be submitted on or before the payment to the director is made so you would have to be very careful with the timing of dividends and ensure that the clients director's loan account does not go overdrawn by more than £10,000 or you will have a P11D issue.

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05th Apr 2014 18:51

P11D

Assuming we go with the 10k plan then P11Ds will be needed for all directors unlike prior years where it wasn't necessarily so.

 

 

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P11Ds have always been necessary for directors...

... irrespective of the level of their earnings. The £8,500 limit doesn't apply in the case of directors. However, nil returns aren't necessary.

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06th Apr 2014 14:22

Really ?

My understanding was that P11D was not due, even for directors, if there were no BIKs and salary was under the £8.5k.

http://www.accountingweb.co.uk/anyanswers/question/p11d-required-directo...

I'll now review my handful of directors, all of whose companies I have ticked the P11D not due box. Should I re-submit the year end RTI with that box ticked do you think?

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My point was...

... that whether a director has earnings of £8K or £10K:

a P11D (rather than a P9D) is required if there are any benefits or expenses.no P11D is required if there are no benefits to report.

Paying them £10K, rather than £8K, changes nothing.

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06th Apr 2014 16:24

Apologies Steve

My apologies, Steve.

If my response sounded churlish it wasn't meant that way.

No disrespect intended.

Kind regards.

S.H.

 

 

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06th Apr 2014 18:34

I haven't checked out the other thread but...

Has anyone considered the complications and problems associated with bank interest, and rental income, etc, if the director is below the £10k limit for tax then no income falls due on the first ~£2,000 of rental income, and with significant bank interest tax can be recovered, this is lost if you take salary right up to the limit, and it isn't free as the extra salary will have attracted NICs on the employee, so the benefit is in the region of £165 if the director has no other income, but if the director has other income once that goes over around (£800 say) all that is lost.  Regards MtF - Sorry for the formatting I don't know what is up.

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