I've recently been discussing the requirement to pay Directors the legal minimum wage - as this could affect the 'dividend versus salary' decision.
As I read it, for the minimum wage to be applicable, the Director must have an employment contract; but in most small 'owner-managed' business cases, I guess no contract is ever drawn up. The contract doesn't of course have to be in writing.
It's obviously now industry practice when advising clients what to pay themselves to start with the usual £7,956 or probably more recently £10,000 (given the employers NIC allowance) levels and then take into account other specific factors relating to the client on top of this.
Does anyone ever consider minimum wage requirements when advising their clients? Or has HMRC ever challenged any of your clients for their salary being lower than the expected minimum?
Replies (4)
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employment contract
As you rightly point out, no directors of their own small business will have an employment contract. Therefore they can pay themselves whatever takes their fancy from Nil upwards. Obviously if not director, then MW will have to be considered. Not really sure of the point of your questions?
Tax credits
I understand that if claiming Tax Credits, the director must be paid the minimum wage.