neilmc65
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Year End Bonus

Year End Bonus

Hi all,

Im sure you are all fed up on this question or varaiations of it but please bear with me.

My client usually has a mix of employed work and freelance work which he does through a limited company. Normally all his PA's are used up by the employed and he takes the income from his company via dividends. This year ending 2016 there is no employed income. Is it too late to set him up on PAYE and award him a £10k bonus from the Company to use up his PA. What are the implications for NI.

Thanks for your contributions

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By Ruddles
04th Mar 2016 19:25

Today is 4 March
When is the end of the tax year?

Thanks (4)
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06th Mar 2016 09:24

April 2016

Thanks (0)
05th Mar 2016 10:32

As Ruddles says .....

Au contraire.

Loads of time.

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06th Mar 2016 09:25

Thanks - what are the implications for E'ers and E'ees NI? Do you have any thoughts?

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By Brunel
06th Mar 2016 09:37

Consider

Which is lower cost?

Employer + Employee NI

or

Corporation Tax

You might look at the NI thresholds, just saying

But 'Er NI is an expense for CT but 'Ee isn't

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06th Mar 2016 09:51

Thanks for this. 

Thanks for this. 

With the E'ees NI - although its month 12 will he get the full  annual allowance threshold rather than the monthly one in this instance. 

Again with the Employers NI I suppose that anything payable will be covered by the annual £2,000 clawback?

 

What do you think? 

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06th Mar 2016 13:59

N.I.

neilmc65 wrote:

Thanks for this. 

With the E'ees NI - although its month 12 will he get the full  annual allowance threshold rather than the monthly one in this instance. 

Again with the Employers NI I suppose that anything payable will be covered by the annual £2,000 clawback?

 

What do you think? 

Yes, he'll get the full allowance provided he was a director throughout the tax year. You can either award him 12 months at £671 per month = £8,052 and pay no tax and no national insurance. Or you can award him £10,600 and he'll suffer £304.80 employee's N.I. But the additional gross pay of £2,548 will save him £509.60 in corporation tax. You should give him the choice and tell him when he'll "recoup" the CT - depends on his year end.

Yes, the employers allowance will cover any employers N.I.

 

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06th Mar 2016 20:20

Thanks NI.

he was a director for the year and wasnt paid anything in the year apart from the bonus which will be in month 12. Hates to lose the PA.

 

All the best

 

 

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06th Mar 2016 09:38

Depends

It depends on a lot of things but generally recommended to be a salary equal to the personal allowance, rest in dividends.

Or, if he has a wife who pays at least £212 in tax, 90% of the personal allowance will be grand.

If he has other employees, or other income, this may not be the case.

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06th Mar 2016 09:54

Thanks Lion,

what is your opinion on the comments re NI above?

 

Look forward to your response although must take kid to rugby so might be a while in getting back to you.

 

Thanks

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06th Mar 2016 20:02

Agree with....

... Thomas.

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By DJKL
06th Mar 2016 23:19

Do also consider Tax Credit

Do  remember to also consider Tax Credit impact (If any)  re having the salary/not having the salary  when considering your advice, and also changes in dividend taxation between 2015/2016 and deferred income to 2016/2017,  all can be easily overlooked.

 

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07th Mar 2016 09:53

Hi DJKLL,

thanks for responding. there is no Tax Credit implication. 

Would you mind elaborating on the other two points please.

 

Thanks

 

Neil

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By DJKL
07th Mar 2016 10:24

Probably not on point if no tax credit implications

neilmc65 wrote:

Hi DJKLL,

thanks for responding. there is no Tax Credit implication. 

Would you mind elaborating on the other two points please.

 

Thanks

 

Neil

The other comments are just re comparing how dividends will be taxed in 2015/2016 and 2016/2017, where no tax credit impact, as now known, there is really nothing much to evaluate; using the PA in 2015/2016 re a salary sounds sensible.

But if tax credits had been on point the timing /structuring of salaries/ dividends between the two tax years would have needed to have taken into account the new £5,000 allowance and the new tax rate on basic rate band dividends post 5/4/16; these changes being why I have this month been checking with clients to get up to date figures in order to declare the maximum safe  dividends before the end of this month. ( whilst staying below higher rate liability threshold)

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07th Mar 2016 10:35

OK DJKLL, 

OK DJKLL, 

thanks very much for your contribution and also to all the other contributors. Decision now made.

 

All the best

 

Neil

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