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Minimum salary to pay director

I have recently incorporated to work on a contract for a bank. Most contractors pay themselves a minimum salary to avoid PAYE and NI. Most have been doing this for years. If this is acceptable, obviously I would like to pay myself that amount. My concern is that as an accountant, if I'm not acting legally, my reputation with HMRC would be damaged if they were to 'catch' me.

Does anybody have any links to guidance, or know the answer?

Thanks

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24th Sep 2011 20:18

look it up

There's loads on this (on here) and as an accountant you should know.

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25th Sep 2011 12:09

This should help
Contractors do not pay themselves to save tax or NI. They pay themselves a minimum amount so they get their qualifying years for their state pension.

Depending on your age you are likely to need 30 years of NI contributions to be entitled to a full state pension, more info can be found here:

http://m.direct.gov.uk/syndicationController?action=view&param=DG_190077...

However, this is the good bit, if you pay yourself above the Lower Earnings Limit you will get a qualifying year and if you pay yourself below the Primary Threshold, you won't pay any NI contributions. Rates & Thresholds can be found here:

http://www.hmrc.gov.uk/rates/nic.htm

The bigger issue is if you fall foul of the IR35 regulations. More info can be found here:

http://www.pcg.org.uk

Good luck and I know plenty of freelance accountants who employ accountants like me to keep on top of all this stuff for them. So I think that saying you should know this could be a little unfair.

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26th Sep 2011 10:55

IR35?

As an accountant, you should also be familiar with the IR35 rules for personal service companies.  If the circumstances of your contract mean that you are effectively working as an employee of the bank, you may need to pay out 95% of your company's income under the contract by way of salary and expenses to yourself.

A pedantic quibble.  It is not a minimum salary.  You might refer to it as a minimal salary, but actually, it is usually the maximum salary that can be paid without having to deduct and pay over PAYE.

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By law man
27th Sep 2011 17:33

Company to save tax

Agree with the above. In addition:

1. the salary is an allowable expense against the company's profits subject to Corporation Tax [save 20%]; while - if you have no other taxable income - you shelter the amount as income in your hands by your personal allowance for income tax

2. If you have a non-other-working spouse, you can pay him/ her a salary and likwise shelter tax

3. You pay out the balance of company profit to yourself as shareholder by way of dividend which is not subject to tax [assuming you are not a higher rate income tax payer] or National Insurance.

 

 

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