Husband and wife are directors of their own company and are also the only shareholders. For 2016/17 they require net income of £38,000 each. Therefore do readers agree that a salary of £8,060 and say £30,000 dividends would be the most tax efficient option as no employers NI allowance so the overall NI charge is higher than the CT saving on say a salary of £11,000.
Thanks
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NI alllowance, tax credits and more
My understanding:
1) NI allowance is withdrawn where the "director is the sole employee". That was the consultation anyway. Two directors = two employees so allowance applies. Therefore consider higher salary.
2) Bear in mind what's right for tax isn't necessarily what's right for other areas, e.g. tax credits, compensation for accidents etc.
Oh look. We have our first question about optimising salaries and dividends for 2016/17. I have to confess that I have not even given this a moment's thought so far. Let me go away and think about it and come back please.
This is further complicated by the employment allowance aspect that I have not yet thought about either.
Keep them coming...
Yes, yes, yes, more comments along these lines, please. Not that you need any encouragement, Portia, but all the same, take this as encouragement and praise.
Your comments seriously lighten up my days.
Directors loan
@Portia
Perhaps at the same time you should also consider them just taking it all out as a loan, as this refundable tax charge will mean there is no tax to pay whatsoever (in the long run)...
They could just borrow and borrow and borrow, knowing the tax will all come back in the end, and save these pesky calculations re dividends/salary for a future date, or different advisor! And we could the just sit back and watch the fees roll in...
Yep,
I'm thinking question posted then ran for the hills to watch the fallout from a safe distance.
Conundrum
Never seen this question asked before but the answer is £11K salary and £28,784 dividends assuming no other annoying things like other income sources.
(Should get a minimum 50 posts on this thread)
@ Thomas34
By my calculations that only gives that only gives a net income of around £37,650 each.
So £700 short from the posters net income needs.
Class 1 NI
Does £5,000 ring any bells?
Is Lship not referring to the employees Class 1 NI deducted on a salary of 11k?
Class 1
I was and I certainly hadn't forgotten the £5K, it had rung many bells, and been included.
Just pointing out the rather precise dividend figure £28,784 wouldn't of been enough, needs to be more in the region of £29,175.
Tax Code includes dividend tax.
I pay myself monthly so I presume even with £8060 as a salary, tax will have to be paid monthly as HMRC have issued a code of 222L to take into account estimated 16-17 dividends. I suppose I could go for annual payroll to overcome this.
Just ask them to take it off
If you ask HMRC to remove the tax adjustment for dividends they will do it
Everyone missing the point
Not sure what's with the "1 thanks" love fest and @Lship is correct.
The OP referred to "no employers NI allowance " and is the lower salary the best way to extract the income.
It is not. There are two directors and so there is an employer's allowance.
Therefore most efficient route is clearly £11k salary, £29,165.18 Net dividends which gives £38k net as posted (don't forget the empee NI).
As Lship and Thomas noted, a "salary of £8,060 and say £30,000 dividends" doth not £38k net income make.
By my calcs, you'd need more like £31750 divs & £8060 sal to get £38k net, and by doing that you're circa £200-£240 worse off, or nearly £500 worse off if you have two directors on £11k
Surely...
By my calcs, you'd need more like £31750 divs & £8060 sal to get £38k net, and by doing that you're circa £200-£240 worse off, or nearly £500 worse off if you have two directors on £11k
Surely you are no worse off. If you are the accountant you get paid the same. If you are the individual you have £38K either way.
Perhaps the company is worse off. Perhaps that is what you meant.
@Portia - don't understand your attitude
Portia, I'm a qualified accountant of long standing, with my own practice circa 500 clients.
Clearly "you" in my post refers to the hypothetical third person.
I am trying to answer the OPs question, and clarify the calcs, so I don't understand
a) why you feel such a facetious reply is appropriate,
b) why you aim it at me and
c) why someone actually thinks a "thanks" is appropriate for it!
It's very easy to come here and fire off flippant remarks at others who take the time to assist a poster, however I'd suggest it rather undermines what AW is for and it might be best for all if you don't.
Sometimes Aweb ...
It's very easy to come here and fire off flippant remarks at others who take the time to assist a poster, however I'd suggest it rather undermines what AW is for and it might be best for all if you don't.
Sometimes Aweb is a little like being in the army, and one comes to appreciate the harsh words on the basis that, on balance, they are coming from people who know what they are talking about - and it's their way of keeping one safe, and on one's toes.
Could it be different? I dunno, most people laugh it off most of the time.
If it's the only way I can get help and assistance on the tricky bits, I'll take it.
Two directors and so there is an employer's allowance
I am aware of tax practitioners who are nervous about assuming the employer's allowance applies with two directors when they are husband and wife (or perhaps any connected parties) and there are no other employees. HMRC are vague on the issue but it would be quite in keeping for HMRC to attempt to prevent sensible tax planning between connected parties by limiting reliefs and allowances regardless of the actual legislation.
Any thoughts from anyone? I must admit that I have not yet attempted to read the legislation myself but I am inclined to be cautious when advising clients on their remuneration strategy for 2016/17.
Monty Python
I am aware of tax practitioners who are nervous about assuming the employer's allowance applies with two directors when they are husband and wife (or perhaps any connected parties) and there are no other employees. HMRC are vague on the issue but it would be quite in keeping for HMRC to attempt to prevent sensible tax planning between connected parties by limiting reliefs and allowances regardless of the actual legislation.
Any thoughts from anyone? I must admit that I have not yet attempted to read the legislation myself but I am inclined to be cautious when advising clients on their remuneration strategy for 2016/17.
Be cautious then and lose out....everyone else will proceed to claim EA for husband and wife director companies.
Autoenrolement ?
Autoenrolement? Two employees?
And what are their labours for their respective £8,060?
What on earth
Autoenrolement? Two employees?
And what are their labours for their respective £8,060?
are you talking about?
Autoenrolement ?
Watching for other trip wires when tempted to move to 2 shareholder / directors - especially also with the £5,000 divi 0% allowance.
With employment contracts, this triggers AE?
So if we are getting NI down to pennies, it may be worthwhile factoring in the cost of unforeseen consequences.
Well it was on my mind anyway.
Because
It isn't often director shareholders work under a contract of employment for obvious reasons.
Auto enrolment
My understanding is that to qualify for the employment allowance you need two employees (directors or otherwise) over the secondary threshold (£8,060 per year)
As the employee has to opt in to the scheme if income under £10k (generally speaking) per year.
Then you could have husband (director) on £11k, wife (employee) on £9k and qualify for employment allowance without auto enrolment liabilities....
Legislation on husband/wife director and NI allowance
I read the Hansard for the legislation on this and the Lords approval specifically retains the wording "if the sole employee is a director". Therefore Husband and wife directors will qualify for the allowance.
Now waiting for Portia to come back with another hilarious swipe at grammar on my post...
Now this is just frigging stupid
I read the Hansard for the legislation on this and the Lords approval specifically retains the wording "if the sole employee is a director". Therefore Husband and wife directors will qualify for the allowance.
Now waiting for Portia to come back with another hilarious swipe at grammar on my post...
The legislation was passed as a statutory instrument (SI 2016/344), which do not go anywhere near the House of Lords, and that is not what it says.
What it says is:
"Excluded companies
(4A) A body corporate (“C”) cannot qualify for an employment allowance for a tax year if—
(a)all the payments of earnings in relation to which C is the secondary contributor in that year are paid to, or for the benefit of, the same employed earner, and
(b)when each of those payments is made, that employed earner is a director of C."
What that means is that there needs to be another person, as well as the director, in respect of whom the company makes employer's NIC contributions, in order for the employment allowance to be claimed.
Glad you were paying so much attention the last 10 times I explained this on here.
Am I bothered?
By the person that was happy to sanctimoniously declare that everybody else in the thread was missing the point.
Disappointed
Portia, you come across as extremely arrogant and disrespectful.
No, I didn't pay attention to "the last 10 times you explained" this on AW. Believe it or not, I don't follow all your posts and chose to instead try and assist the OP having seen your initial flippant "Oh look. We have our first" post, which did nothing to answer the question.
I'm sorry if my post came across as "sanctimonious", however I felt that most of the initial posts did little or nothing to address the question, hence "missing the point".
Having said that, your frankly obnoxious post "Now this is just frigging stupid" confirms my point, regardless of origin, i.e. "Husband and wife directors will qualify for the allowance".
That being so, my post regarding optimum salary/dividend stands.
@Gonesailing "Sometimes Aweb is a little like being in the army, and one comes to appreciate the harsh words on the basis that, on balance, they are coming from people who know what they are talking about - and it's their way of keeping one safe, and on one's toes." - I am an FCCA qualified, Registered Auditor of 18 years experience. I do know what I am talking about and yet do not feel the need to post flippant and haughty remarks aimed at people I (wrongly) assume are inferior in their knowledge to me!
Spirit
I don't come on Any Answers that much, but feel that because there are some on here who take the time to answer my questions and help, I should do the same.
I do therefore feel it's important to say that if by doing so, I (and others) stand to be patronised and talked down to, I shan't bother and I dare say others won't either.
That being so, I would respectfully suggest that certain individuals just reflect on this and consider what makes AW what it is.
Now unfollowing this topic. Have a good Easter.
Honestly, there is no need to be so frigging rude, just because you have way less qualifications and experience than me, clearly have an inferior knowledge, and lack the necessary intellect to grasp the point about how much the husband and wife must each be paid, which must then satisfy the wholly and exclusively test.