Payroll and sole Director small salary, paid mainly in dividends

Payroll and sole Director small salary, paid...

Didn't find your answer?

Good evening, I tried to post this question earlier do I hope not to have duplicated.

My husband has run his own acoustics Ltd company alongside a full time day job for a few years. The full time day job has covered off PAYE and he is virtually fully paid up.

The acoustics company has used any small operating income to reinvest and we have not yet paid a dividend. I have submitted the appropriate Corp tax returns and accounts to HMRC however I have not registered the company as an employer.

We have now decided to go for independence and give the business a good go.

Our intention is to pay Salary to the LEL for NICs, probably annually. Do I need to register the company as an employer and take on the admin burden of RTI payroll for these zero returns.... I would like to avoid the additional admin burden if possible.

Advice would be most welcome.

Kind regards

Replies (21)

Please login or register to join the discussion.

avatar
By stephenkendrew
09th Dec 2015 07:00

LEL

If you pay him up to the LEL then you do not have to register for PAYE if he has no other employment income.

You will however cost yourself £447.20 in corporation tax by avoiding "this admin burden."

The cost would increase further, from April 2016, if the money is taken as dividends. 

He would also not get the benefit of paying NI, which could affect his state pension entitlement.

Thanks (1)
Replying to johnt27:
avatar
By Emster
09th Dec 2015 12:30

Hi, thank you for this much appreciated.

Regarding NI contributions, he has 30 years of full contributions including the additional 2% rate.

The corporation tax payment would be offset to an extent by employees NI saving of £305 so in balance (up to the allowance free rate) so that would worth while forgoing for the admin burden.

Would you mind clarifying you penultimate point ref payments as dividends will cost more from APril 2016. I think I must have missed a new rule.

Thank you again for taking the time to reply.

Thanks (0)
Replying to paul.benny:
RLI
By lionofludesch
11th Dec 2015 10:21

Apologies

Duplicated.

Thanks (0)
Euan's picture
By Euan MacLennan
09th Dec 2015 10:20

Not quite correct

Emster wrote:

Our intention is to pay Salary to the LEL

If the company pays anyone a salary at the LEL or above, it must register for a PAYE scheme.  If you wish to avoid the burden of PAYE and hence, of reporting PAYE under RTI, you must pay him less than the LEL.

Thanks (1)
Replying to DJKL:
avatar
By Emster
09th Dec 2015 12:35

Noted thank you

Thanks (0)
RLI
By lionofludesch
09th Dec 2015 10:41

Pension

Agree with stephenkendrew.  You need to consider the effect on your respective pensions. Not registering for PAYE could be a false economy.

Thanks (1)
By Tim Vane
09th Dec 2015 10:49

Loving the title:

"small salary, paid mainly in dividends".

Says it all really.

Thanks (3)
Replying to Paul Hawes:
RLI
By lionofludesch
09th Dec 2015 11:04

Ambiguous

Tim Vane wrote:

Loving the title:

"small salary, paid mainly in dividends".

Says it all really.

Ambiguous - but could be interpreted correctly with an open mind - and reading the rest of the question.

Thanks (2)
By SteveHa
09th Dec 2015 12:13

Under RTI, you can file an EPS to advise that there will be no payments for up to 12 months. Since you are planning on a annually paid salary, you should have minimal admin by doing this.

Thanks (1)
By SteveHa
09th Dec 2015 12:47

From April 2016, dividend will lose the notional tax credit, and will be subject to tax bandings as follows:

£0 - £5,000, 0%

Dividends within BR - 7.5%

Dividends at HR - 32.5%

Dividends at additional rate - 38.1%.

Dividends form the top slice of income. If any part of the £5,000 0% dividends fall in the basic rate, the BR band is reduced by an equal amount. e.g.

BR threshold £31,765. Tax free allowance used elsewhere. Dividends received, £3,500. BR available to set against other income, £31,765 - £3,500 = £28,265.

Thanks (0)
Replying to Paul Crowley:
avatar
By Emster
09th Dec 2015 13:41

Thank you. So to clarify then, on laying a salary of 8060, would he then have capacity of 5000 tax free for dividends or the rest of his personal allowance, plus 5000 = 7740 tax free.

so rather than having a rate of dividend tax aligned to you PAYE tax rate, your dividend income forms part of your income that can push you into paying various rates ?

I am learning, thank you

Thanks (0)
Replying to frankfx:
RLI
By lionofludesch
09th Dec 2015 15:23

Collection

Emster wrote:
Thank you. So to clarify then, on laying a salary of 8060, would he then have capacity of 5000 tax free for dividends or the rest of his personal allowance, plus 5000 = 7740 tax free. so rather than having a rate of dividend tax aligned to you PAYE tax rate, your dividend income forms part of your income that can push you into paying various rates ? I am learning, thank you

PAYE is a way of collecting tax, not assessing it.  The rates are linked to the basic rate, higher rate and additional rate thresholds.  Whether they agree with PAYE will depend on other factors.  But, yes, of course, the higher your dividend income, the more likely you are to pay the new dividend tax at a higher rate.

If your company is still eligible to claim Employment Allowance, you may like to consider aligning salary with the Personal Allowance (currently £10600).

Life's complicated and DIY isn't always the best plan.  You may not know what you don't know and we certainly don't know what you don't know.

Thanks (1)
RedFive
By RedFive
09th Dec 2015 14:51

Paid advice

What happened to those folk who would come on this sort of thread and say-

"This is a site designed for Accountants to ask other Accounts questions. In your circumstances you would be best advised to appoint your own Accountant to deal with your forthcoming issues"

Oh, I see what I did there.

Ok, I can't help it - you say you are learning but you didn't know about the new 'Dividend tax' so while it is laudable that you have submitted your own accounts and CT600, I wonder what else you have missed.

May I politely advise that it would be your Accountants job to keep abreast of all these forthcoming change and advise accordingly. His or her tax deductible expense to you may save you his or her cost in tax alone, let alone allow you to concentrate on running your business and selling your product rather than spending your days asking Dr Google about taxes.

I have many clients running a business like yours who even buy me whisky at Christmas as they feel the modest fee they pay me is not enough for the wonderous work I do for them.

All the best.

p.p.s. I call out Portia who has renamed herself and has set the final question as a trick.

 

Thanks (0)
Replying to ireallyshouldknowthisbut:
avatar
By Emster
09th Dec 2015 20:30

Thank you for your comments,
Thank you for your comments. red five, I am ACMA PQE 20 years working in commercial corporation managing and analysing a £3bn balance sheet using completely different set of skills required of us accountants; I am however brushing up on my book keeping for my husband and thought I would reach out to those colleagues in the know, most of whom have been kind and helpful.

Thanks (2)
Replying to AC71:
Red Leader
By Red Leader
09th Dec 2015 20:33

ACMA £3bn?

Emster wrote:
Thank you for your comments. red five, I am ACMA PQE 20 years working in commercial corporation managing and analysing a £3bn balance sheet using completely different set of skills required of us accountants; I am however brushing up on my book keeping for my husband and thought I would reach out to those colleagues in the know, most of whom have been kind and helpful.

That's not relevant.

I've had qualifed accountants for clients.

Thanks (1)
avatar
By stephenkendrew
09th Dec 2015 16:53

I'm afraid you are stilll wrong.

You appear to believe the LEL is £8,060 per annum.

It is not!

The LEL is currently £5,824.

Thanks (1)
Replying to Ian Bee:
avatar
By Emster
09th Dec 2015 21:45

Thank you Stephen. I was referring to the primary threshold when you start paying NI. My husband is a Director (if this is relevant). However the key here will be if the LEL triggers registration as employer and therefore payroll, RTI or the Primary threshold breach. I am beginning to think there is no escape but to embrace the payroll. Thank you for your answers.

Thanks (0)
Replying to Tax Dragon:
RLI
By lionofludesch
10th Dec 2015 11:14

Big Deal ?

Emster wrote:
I am beginning to think there is no escape but to embrace the payroll. Thank you for your answers.

I can never understand why this is such a big deal.  Especially to someone with experience in the profession.

Thanks (1)
Replying to I'msorryIhaven'taclue:
avatar
By Emster
10th Dec 2015 20:21

Hi, just never done payroll before. Just stat accounts and forecast and financial modelling. I always figured it was a big bear of a hassle, however I will do what needs to be done. Thank you for your constructive comment.

Thanks (0)
Replying to wxip:
RLI
By lionofludesch
10th Dec 2015 21:34

Don't be fazed

Emster wrote:
Hi, just never done payroll before. Just stat accounts and forecast and financial modelling. I always figured it was a big bear of a hassle, however I will do what needs to be done. Thank you for your constructive comment.

Thousands of employers, totally untrained in accountancy, manage payroll every week.

Thanks (1)
avatar
By zebaa
09th Dec 2015 17:45

30 years ni contribution is enough to get a state pension now. Next year 35 years. And in the distant future...who knows?

Thanks (1)