Is the minimal salary / top up with dividends actually allowed?
I'm a small freelancer accountant & have just taken on my first contractor client. He has set up a limited company and just started work on his first contract. I have explained IR35 implications to him, although the agency he got the contract through has assured he won't be caught by IR35 with this contract. He is going to submit his contract to HMRC for an opinion anyway, just to be sure.
In the meantime, he has registered as an employer & is wanting me to set up his payroll for him. Assuming that he isnt caught by IR35, is it really still acceptable to set up his remuneration as minimal salary (eg below PAYE / NIC thresholds) and pay the rest as dividend? I was under the impression that this is frowned upon by HMRC..... I also have an old work colleague who does a lot of contractor accounting & says that this is the norm - virtually all contractors pay themselves a minimal salary & top it up with dividend each month.
Am I being daft / too cautious to advise that my client doesnt do this, or is is perfectly acceptable to HMRC for someone to pay salary so that it just falls below PAYE / NIC threshold, then declare legal dividends (with all accompanying paperwork) each month?
Is it advisable to pay below PAYE / NIC threshold but ABOVE the LEL so as to trigger pension credits?
Any advice much appreciated.....
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